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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 10662 ~1 October 14, 1993 STANDARDIZED CRIMINAL REFERRAL FORM Amendments to Regulations H , K, and Y Establishing a Uniform Multi-Agency C rim inal Referral Form To All State Member Banks, Bank Holding Companies, Branches and Agencies of Foreign Banks, and Edge and Agreement Corporations in the Second Federal Reserve District, and Others Concerned: The Board of Governors of the Federal Reserve System recently adopted amendments to its Regulation H (Membership of State Banking Institutions in the Federal Reserve System), Regulation K (International Banking Operations), and Regulation Y (Bank Holding Companies and Change in Bank Control) requiring all domestic and foreign banking organizations supervised by the Federal Reserve to make criminal referrals when they detect suspected criminal activities. The final rule, which was published in the Federal Register on September 8, 1993, with an effective date of October 8, 1993, codified the existing criminal referral guidelines used by the Board since 1985. The Board’s final rule provides, in part, that financial institutions should use a new criminal referral form that was developed jointly by the bank and thrift regulatory agencies or, in the alternative, computer software capable of producing a “shell” of the new form. In its Federal Register notice, the Board advised that the forms and computer software would be available from the Federal Reserve Banks and the Board. It was expected that distribution of the forms and computer program would take place in enough time to facilitate compliance with the final rule’s October 8, 1993 effective date. However, while the new forms are ready for distribution, the computer software program that could be used to produce the new form is not yet available. Financial institutions may comply with the Board’s new criminal referral regulation by using the current version of the Board’s Criminal Referral Form (FR 2230). Enclosed is the text of the amendments to Regulations H, K , and Y, which have been reprinted from the Federal Register of September 8. Questions regarding the Criminal Referral reporting process should be directed to Regina Sherwood at (212) 720-2698. W illiam J.M cD o n o u g h , President. Board of G overnors of the <ideral Reserve System M EM BERSH IP OF STATE BANKING INSTITUTIONS IN TH E FED ERA L RESERVE SYSTEM INTERNATIONAL BANKING OPERATIONS BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL A M E N D M E N T S T O R EG U LA TIO N S H, K , and Y (Effective October 8, 1993) FEDERAL RESERVE SYSTEM 12 CFR Parts 208,211, and 225 [R egulations 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 Board of Governors of the Federal Reserve System. ACTION: Final rule. AGENCY: 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 rep lace the v arious c rim in a l 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 offthe regulation is to create a uniform criminal referral reporting requirement for all domestic and foreign financial institutions operating in the United States. EFFECTIVE CATE: October B, T993L SUMMARY: FOR FURTHER INFORMATION CONTACT: Herbert A. Biem, Deputy Associate Director, (202/452-2620), Bichard A. 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. SUPPLEMENTARY INFORMATION: The Interagency Bank Fraud Working Group (Working Group) was fanned in B a c k g ro u n d 1984 to promote interagency The Federal financial institutions cooperation toward the goal of regulatory agencies are the Office of the improving the federal government’s Comptroller of the Currency fOCG), the response to white collar crime in Board o f Governors of the Federal financial institutions. The Working Reserve System [(Board), the Federal Group now consists o f representatives Deposit Insurance Corporation (FD1G), from twelve Federal agencies, including the Offioe of Thrift Supervision fGTS), the Board, the other federal financial and the National Credit Union institutions regulators, the Federal Administration fNGUA). These agencies Bureau of Investigation, the U.S. Secret are chaiged with safeguarding the safety Service, (he Department of Justice and and soundness of financial institutions the U.S. Department offheTreasury. A with operations in the United States, subcommittee of the Working Group including national banks, credit unions, studied the criminal referral process and ■ savings associations, State-chartered developed a trew -uniform criminal banks, bank and thrift holding referral form (the Form).The purpose off companies and their nonbank the Form is to standardize criminal subsidiaries, Edge and Agreement Teferral data and to facilitate its corporations, sand all U.S. offices of automation. Because the Form is foreign banks. Pursuant to (their machine readable, it is anticipated that respective enabling statutes, these the resulting interagency criminal agencies are responsible for ensuring referral database will he fully .functional that financial institutions apprise in a relatively short period of time. The federal daw Enforcement authorities of database will provide information, inter any violation nr suspected violation of alia to the OCC, Board, BFDIcjDTS, a criminal statute. Fraud, abusive NCUA.ond U S . Department of the insider transactions, check dating Treasury. In carder lo promote use of the schemes, money -laundering and other Form, each of the Federal financial Small, Special Counsel, (202/452-5235), or Mark Leemon, Senior Attorney. 1202/ 452-5206), Division o f Banking Supervision and Regulation,, Board of Governors of the Federal Reserve System. For the hearing impaired -only, Telecommunication Device for the Deaf, Dorothea Thon\pson,,(202/4S2-3544), Board o f Governors of the Federal Reserve System, 20th and CStreets, NW., Washington, DC 20551. PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 58 NO. 172, pp. 47206-09 [Enc. Cir. No. 10662] Jfc, It is important to note that the agents, refrain from communicating that regulation requires that financial a criminal referral has been made and institutions use only the Form or the the information reported in a criminal computer shell that has been authorized referral to any person involved in the by the Federal regulators. Use of another suspicious transaction.^ Several commenters recommended form, a facsimile of the Form, or any that the dollar minimums on reportable computer software shell of the Form offenses be raised. Although these other than the shell distributed by the comments raise a valid concern, regulators is not permitted and could particularly for financial institutions result in a determination that a financial that may file numerous criminal institution or an institution-affiliated Comments 'Received referrals, the appropriate law party has not complied with this O njanuaiy 8., 1893, a proposed enforcement authorities have advised regulation. regulation was published in the Federal the staff of the Board and the other hank Regulatory Flexibility Act Analysis Register j[58 FR 3235]. Thirty-four and thrift regulatory agencies that the comments were received on the present limits are necessary Tor their law The Board certifies that this proposed proposed regulation. Fourteen enforcement functions. Additionally, regulation will not have a significant comments were from holding with the advent of the new banking and financial impact on a substantial companies, eighteen comments were law enforcement agency databases, number of small banks or other small from commercial banks or Federal patterns of crime throughout the entities. Reserve Banks, and two comments were financial community should become from attorneys representing financial more easily detectable. Especially in the Executive Order 12291 institutions. Twenty-five of the cases of credit card fraud, money The Board has determined that this comments expressed general support for laundering, and check kiting, seemiqgly proposed regulation is not a “major the regulation. Four of the comments minor individual reports often are rule” and therefore does not require a were critical of any reporting analyzed to detect major fraud schemes. regulatory impact analysis. requirement whatsoever, a view that we Several commenters queried whether Paperwork Reduction Act must reject in light of the responsibility the requirement to notify the boards of of financial institutions to assist law directors of financial institutions of the In accordance with Section 3507 of enforcement authorities in the filing oT criminal referrals should he the Paperwork Reduction Act of 1980, performance of their duties. Ten ofthe viewed as mandating a communication the criminal referral report regulation comments suggested raising the dollar to Ihehoard every time a criminal was approved under authority delegated thresholds for required reporting. Five referral is filed or whether the to the Board by the Office of of the comments suggested computer notification requirement could he Management and Budget. The Board has software he made available to simplify satisfied by'aperiodic or summary determined that the regulation does not the reporting requirement. One report. Consistent with current practice, significantly increase the burden of the comment expresses concern for possible the requirements of the regulation will reporting institutions. The estimated liability to financial institutions that be satisfiedhy a summary or periodic average burden associated with the might arise under various pri vacy laws. report to the hoard of directors, unless collection of information contained in a With respect to potential civil liability n criminal referral relates to a material criminal referral report is approximately that might arise in connection with the event that necessitates a more prompt .6 hour per respondent. The burden per submission o f a criminal referral. notification to the hoard of directors. respondent will vary depending on the Congress b e e n acted a statute that nature of the criminal activity being Several commenters recommended provides protection from civil liability reported. that a computerized model be for the repenting of criminal acts to developed to facilitate the task of Comments concerning the accuracy oi ap p rop ria te au th o ritie s. Amendments to completing the forms. The use of a this burden estimate should be directed the Bank Secrecy Act made by the computer shell was contemplated from to the Herbert A. Biem, Deputy Housing and Community Development the inception of the interagency Associate Director, Division of Banking Act of 1992 <31 U S,C . 5314fg)(3j) database; and, as a result, a computer Supervision and Regulation, Mail Stop provide that financial institutions, end shell will be made available 175, Federal Reserve Board, 20th and C their directors,*off»cers,employees and contemporaneously with the Streets, NW., Washington, DC 20551. agents, that disclose* an good faith, distribution of the new form, at no, or List of Subjects possible violations o f law an connection a very minimal, cost to financial with the preparation o f •criminal referral institutions. The computer shell will 12 CFR Part 20 8 forms shall not be liable to any person enable the completion of the form using Accounting, Agriculture, Banks, under any law or (regulation of the a personal computer and a laser printer. banking, Confidential business United States carany constitution, law, The computer shell should reduce the information, Currency, Reporting and or regulation of any State or political costs and burdens associated with the recordkeeping requirements, Securities.. subdivision thereof, for such disclosure preparation of the Form. or for any failure to notify the person 12 CFR Part 211 involved in the transaction or any other Exports, Foreign banking, Holding person o f such disclosure. This law also i The new criminal referral form prominently requires that financial institutions* and ■ provides a description of this new law on the front companies, Investments, Reporting and recordkeeping requirements. their directors, officers, employees and page Df the form’s instructions. institutions regulatory agencies lias 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. 2 of suspects and the suspect(s) is not an director, officer, employee, agent, or Administrative practice and institution-affiliated party of the State procedure, Banks, banking, Holding member bank; companies, Reporting and (3) There is an actual or potential loss recordkeeping requirements, Securities. to the state member bank (before 12 CFH Part 2 25 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-M EM BERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM 1. The authority citation for 12 CFR part 208 is revised to read as follows: A u th o r ity : 12 U.S.C. 248(a) and (c), 321328, 461, 481-486, 6 0 1 ,6 1 1 , 814,1818, 1823(j) and 1831o. 2. Section 208.20 is added to read as follows: enforcement authorities; and (2j For lost, missing, •courfterfeit or Stolen securities if a report is filed pursuant to the reporting requirements of 17 CFR 240.17M. R etention o f records. A State reimbursement or recovery) of $5,000 or member bank shall maintain copies of more and where the State member bank any Form that it filed and the originals has no substantial basis for identifying of nil reflated documents for a period off a possible suspect or group of suspects; 10 years from the date of the report. or • (h,) N dtificuthm to hoard o f directors. (4) The State member bank suspects The management of a State member that it is being used as a conduit for bank shall p romptly notify its b oard o f criminal activity, such as money laundering or structuring transactions to directors of any report filed pursuant to this section. evade the Bank Secrecy Act reporting (i) Penalty. Failure tofile a report in requirements. accordance with the ■ mStructians on the id) Tim e fo r reporting. (1) A state Form and this regulation may subject member bank shall file the report required by paragraph (c) of this section the State member bank, its directors, no later than 30 calendar days after the officers, “employees, agents, <or other institution-affiliated parties to date of detection of the loss or the supervisory action. 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 (a) Purpose. This section applies to the known, attempted or suspected known or suspected crimes involving criminal violation or activity, reporting state member banks. This section may be delayed an additional 30 ensures that law enforcement agencies calendar days or until a suspect has are notified by means of criminal been identified; but in no case shall referral reports when unexplained reporting of known or suspected crimes losses or known or suspected criminal be delayed more than 60 calendar days acts are discovered. Based on these after the date of the detection of the loss reports, the Federal government will or the known, attempted or suspected take appropriate measures and will criminal violation or activity. When a maintain an interagency database that is report requirement is triggered by the derived from these reports. identification of a suspect or group of (b) Institution-affiliated party. suspects, the reporting period Institution-affiliated party means any commences with the identification of institution-affiliated party as that term is each suspect or group of suspects. defined in sections 3(u) and 8(b)(3) and (2) When a State member bank detects (4) of the FDIA (12 U.S.C. 1813(u) and a pattern of crimes committed by an § 208.20 crim es. Reports o f crim es and suspected 1818(b)(3) and (4)). (c) Reports requ ired . A state member bank shall file a criminal referral report using a standardized form (Form),™ in accordance with instructions for the Form, in every situation where: (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 11 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. PA R T 2 1 1 — INTERNATIONAL BANKING OPERATIONS 1. The authority citation for 12 CFR part 211 is revised to read as follows: Authority: 12 ILS.C. 221 ■ etseq., IBIS, 1841 et seq., 3101 etseq^ -3901 •etsaj., and Pub. L. 100-416,102 StflL 1384 (1988). £ . Section 211 follows: is added to read as §2tU 8 Reports 0Tcrimes and suspected crimes. An Edge coiporatkm or any branch or subsidiary thereof or an Agreement corporation or branch or any subsidiary thereof shah file a crimmafl referral form in accordance with the provisions -cff*§ 208.20 o f the Board’s Regulation H, 12 identifiable individual, the State CFR 208.20. member bank shall file a report no later 3. Section 211,24 is amended by than 30 calendar days after the adding a new paragraph f Qto read as aggregated amount of the crimes follows: 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 t o . filing a timely written report. (e) R eporting to state and local authorities. State member banks are encouraged to file copies of the Form with State and local authorities where appropriate. § 2 4 1 2 4 A p proval o f offices o f foreig n banks; procedures lo r applications; stan dards lo r approval; representative o ffic e a c tiv itie s and standards fo r approval; p reservatio n of existing authority. * * * * (JDR eports o f crim esn n d su sp ected crim es. Except fora federal branch nr a federal agency or a state branch that is insured by the Federal Deposit Insurance Corporation, a branch nr agency or a representative office of a foreign bank operating ha the United (f) E xceptions. A State aaember bank States shah file a criminal referral form need-not •file'die Form: in accordance with the provisions o f $ (1) For those robberies and burglaries208.20 o f the Board’s Regulation £L 12 that are reported to local law CFR 208.20. 3 * wdSU PA RT 2 2 5 —SA N K HOLDING COM PAN IES AND CHANGE IN BANK CONTROL 1. The authority -citation for 12 CFR part 225 is revised to read as follows; Authority: 12 LJLSjC. 16170)113); 1313(b); 1 8 44(b ); 3 1 0 6 and 3 1 0 8 ; and Pub. L 9 8 -1 3 1 , title IX . 2. -Section 225.4 is amended by adding a new paragraph fg) to read as with the provisions ol § 208.20 o f the Board’s Regulation H, 12 CFR 208.20. follows: § 2 2 5 .4 * -5* C o rp o rate practices. -* ‘-* ** Ig) C rim in cJ referral repo rt. A'bank holding (company or any nonbank subsidiary thereof, o ra 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 4 Board o f G overnors of th e Federal Reserve System , A ugust 3 1 ,1 9 3 3 . W illiam W . W iles, Secretary o f the Board. (FR Doc. 9 3 -2 1 6 5 8 Filed 9-7-93; 8 :4 5 and BILLING C O D E
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