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Civil Money Penalties and the Bank Secrecy Act - A Hidden Limitation of Power
BY STEPHENS B. WOODROUGH

Introductory Note: This article was published in The Banking Law Journal in January 2002 (119 Bank Law J. 46) and focuses upon the authority of the federal bank regulatory agencies to utilize the sanction of a civil money penalty for a violation of a regulation promulgated by such agencies to implement the requirements of the Bank Secrecy Act. Somewhat surprisingly, the article concludes that notwithstanding the provisions of section 8(i) of the Federal Deposit Insurance Act (12 U.S.C. 1818(i)), none of the federal bank regulatory agencies have the legal authority to impose a civil money penalty for such violations.

SUPPLEMENTAL NOTE: The issues discussed in this article are currently before the U.S. Court of Appeals for the District of Columbia in the case of Washburn v. OCC, Case No. 02-1171. The case is scheduled for oral argument on April 24, 2003. See APPELLANT'S INITIAL BRIEF filed with the D.C. Circuit Court of Appeals, and see APPELLANT'S REPLY BRIEF filed in response to the OCC brief filed in answer to Appellant's Initial Brief. After the US Court of Appeals for the District of Columbia denied the appeal and a petition for rehearing, a Petition for Certiorari to the U.S. Supreme Court was filed. A copy of the narrative portion of SUPREME COURT BRIEF is appended.

Thirty years ago, Congress enacted the Bank Records and Foreign Transactions Act,1 which was the first legislative effort to curb a growing money laundering problem in the United States by imposing certain recordkeeping and reporting requirements on certain currency transactions. Since that time, there have been a multitude of statutory amendments and newly enacted related laws,2 as well as the promulgation of numerous implementing rules and regulations by the Department of the Treasury3 and each of the federal bank regulatory agencies.4 The end-result is a bewildering array of statutes, rules, regulations, and amendments thereto that serve to create a virtual labyrinth of tangled provisions pertaining to the various requirements and prohibitions of the law and the enforcement authority of the various agencies to impose formal regulatory sanctions for violations thereof by institutions and/or their employees, officers or directors. The problem is particularly acute in determining the scope of enforcement authority of the federal bank regulatory agencies because of their multiplicity and the overlapping authority of the Department of the Treasury.5 This article focuses upon the authority of the federal bank regulatory agencies to utilize the sanction of a civil money penalty for a violation of a regulation promulgated by such agencies to implement the requirements of the Bank Secrecy Act. Somewhat surprisingly, it is concluded that none of the federal bank regulatory agencies have the legal authority to impose a civil money penalty for such violations.

Statutory Authority

The statutory authority to impose civil money penalties for violations of the Bank Secrecy Act ("BSA")6 and/or any of the rules and regulations promulgated by the Secretary of the Treasury ("Treasury Regulations")7 was originally enacted in 1982 and was expressly limited to the Secretary of the Treasury.8 At that time (1982), the authority of the federal bank regulatory agencies to assess civil money penalties was limited. Such penalties could be assessed by the banking agencies for violations of formal supervisory orders issued by the agencies and for violations of written supervisory agreements with the agencies; however, the authority of the agencies to assess a civil money penalty for violations of laws or regulations was restricted to certain specified laws and regulations governing transactions with insiders and affiliates, or changes in bank control.9

Congress expanded the requirements of BSA in 1986 with the enactment of the Money Laundering Control Act of 1986, requiring each of the federal bank regulatory agencies to promulgate rules and regulations to require that all insured financial institutions to adopt and maintain policies and procedures designed to assure compliance with BSA and its implementing Treasury Regulations.10 The same 1986 legislation also expanded the enforcement authority of the federal bank regulatory agencies to address violations of regulations promulgated by the agencies requiring institutions supervised by the agencies to adopt policies and procedures designed to assure compliance with BSA and the implementing Treasury Regulations.11 In this regard, the banking agencies were specifically empowered to issue cease and desist orders to affect compliance with the new BSA requirements.12

The authority of the banking agencies to impose civil money penalties, however, was not expanded to provide for such penalties based upon a violation of any BSA-related law or regulation, including regulations promulgated by the agencies pursuant to the newly enacted section 8(s)(1) of the Federal Deposit Insurance Act ("FDIA") requiring banks to adopt policies and procedures designed to assure compliance with BSA and the Treasury Regulations. Rather, the authority of the federal bank regulatory agencies to impose civil money penalties, while expanded by the 1986 legislation, was broadened only to provide for penalty orders for violations of cease and desist orders issued pursuant to the newly enacted section 8(s)(3) of FDIA.13

Section 8(s)(1) of FDIA provides that each of the federal banking agencies "shall prescribe regulations requiring insured depository institutions to establish and maintain procedures reasonably designed to assure and monitor the compliance of such depository institutions with the requirements of subchapter II of chapter 53 of title 31."14 As a result of the statutory mandate in section 8(s)(1), all of the banking agencies announced the promulgation of implementing regulations which became effective in January of 1987 that were substantially identical with each other, requiring the supervised institutions to adopt and maintain policies and procedures reasonably designed to assure compliance with all of the recordkeeping and reporting requirements of BSA and its implementing Treasury Regulations.15 As of 1987 when those regulations became effective, the federal banking agencies did not have the authority to assess a civil money penalty based upon a violation of BSA, the implementing Treasury Regulations, or any regulation promulgated by the agencies in accordance with section 8(s)(1) of FDIA.16 Only the Secretary of the Treasury had such authority.17

In regulations that became effective six months later in July of 1987, the Secretary of the Treasury promulgated regulations providing for explicit delegations of authority regarding implementation and enforcement of the recordkeeping and reporting requirements in BSA.18 Such delegations were made by the Secretary of the Treasury pursuant to 31 U.S.C. § 5318 which authorized the Secretary of the Treasury to "delegate duties and powers under this subchapter [II of Chapter 53 of Title 31] to an appropriate supervising agency," and reflect a clear intent to limit the authority of the federal bank regulatory agencies to examining supervised institutions for compliance with the requirements of BSA and the implementing Treasury Regulations.19 In sharp contrast with the delegations to the federal banking agencies, the Secretary of the Treasury has delegated the authority to impose civil money penalties for violations of the requirements of the Treasury Regulations to the Assistant Secretary (Enforcement).20 Further, the detailed and comprehensive civil money penalty provisions in BSA21 and the implementing Treasury Regulations22 set forth specific civil money penalty sanctions that may be imposed for violations of the various reporting and recordkeeping requirements of the Treasury Regulations and do not include any type of provision which indicates that any of the federal banking agencies has the authority to impose such sanctions.

Based upon the foregoing, it is clear that as of July of 1987, the Secretary of the Treasury, the Assistant Secretary (Enforcement), and (under certain circumstances) the Deputy Assistant Secretary (Law Enforcement) were the only representatives of federal government who had the authority to impose civil money penalties for violations of BSA, its implementing Treasury Regulations, or the implementing regulations promulgated by the federal banking agencies in accordance with section 8(s)(1) of FDIA. It is equally clear that the placement of such authority was the product of a deliberate statutory scheme enacted by Congress which specifically vested overall authority to interpret, administer, and enforce the requirements of BSA with the Secretary of the Treasury. Although that same statutory scheme also authorized the Secretary of the Treasury to make certain delegations of authority to the federal banking agencies, including the power to impose civil money penalties for violations of BSA or its implementing Treasury Regulations, no such delegations had been made as of July of 1987.

The only remaining questions are (1) whether Congress has enacted any law subsequent to July of 1987 which changed the statutory scheme, and (2) whether the Secretary of the Treasury has expanded the delegations to the federal banking agencies to include the authority to impose civil money penalties for violations of BSA or any of its implementing regulations. As indicated below, both questions are answered in the negative.

FIRREA

In 1989, Congress enacted Section 907 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA"),23 which, inter alia, expanded the legal basis upon which the federal banking agencies could impose civil money penalties by providing that such penalties could be imposed for violations of "any law or regulation."24 Notwithstanding the broad language used ("any law or regulation"), there are at least four compelling reasons that support the thesis that the 1989 legislation did not change the previously established statutory scheme regarding enforcement of the recordkeeping and reporting requirements of BSA and its implementing Treasury Regulations or the regulations promulgated by the banking agencies pursuant to section 8(s)(1) of FDIA.

First, Congress did not repeal section 8(s)(3) of FDIA25 which requires that the federal banking agencies enforce the requirements of regulations promulgated by such agencies pursuant to section 8(s)(1) by issuing a cease and desist order under either sections 8(b) or 8(c) against any institution that violates such regulations. Because of the mandatory language in section 8(s)(3) ("the agency shall issue an order"), it would be difficult (if not impossible) to argue the applicability of the putative authority in section 8(i) to impose a civil money penalty for such violation. Congress has directed the federal banking agencies to enforce the regulations promulgated by the agencies under section 8(s)(1) of FDIA by using a specific enforcement sanction, viz., a cease and desist order.

Second, the legislative history of section 906 of FIRREA clearly indicates that Congress was well aware of the existence of the previously established statutory enforcement scheme for violations of BSA and its implementing regulations, and that the new, expanded authority of the federal banking agencies to impose civil money penalties was not intended to change that enforcement scheme:

It is anticipated generally that use of this authority by a federal banking agency [to impose a civil money penalty for a violation of "any law or regulation"] would not be appropriate if there was a civil penalty authority under a more specific penalty statute such as 31 U.S.C. 5321.26 [Emphasis added.]

The message is unambiguous and confirms the Congressional intent to maintain the previously established statutory enforcement scheme regarding compliance with the recordkeeping and reporting requirements of BSA and BSA-related rules and regulations.27

Third, when Congress enacted the Money Laundering Suppression Act of 1994,28 it unequivocally reaffirmed its previously expressed intention that the Treasury Department was the only federal instrumentality authorized to impose a civil money penalty for violations of BSA or any BSA-related implementing rules and regulations. The 1994 legislation directed the Secretary of the Treasury to delegate the authority to impose civil money penalties to the federal banking agencies.29 The newly enacted statute (31 U.S.C. § 5321(e)) provides in part:

The Secretary of the Treasury shall delegate in accordance with section 5318(a)(1) and subject to such terms and conditions as the Secretary may impose in accordance with paragraph (3), any authority of the Secretary to assess a civil money penalty under this section on depository institutions (as defined in section 3 of the Federal Deposit Insurance Act) to the appropriate federal banking agencies (as defined in such section 3). [Emphasis added.]

If the fundamental axiom of statutory interpretation that enacted terms and phraseology are never meaningless is observed, the mandate in the cited statute confirms two propositions: (1) prior to its enactment, the federal banking agencies did not have the authority to assess a civil money penalty for a violation of BSA or any BSA-related regulation, (2) the power to impose a civil money penalty, if delegated to the federal banking agencies under the statute, would be limited to penalty orders imposed upon depository institutions, not individuals or "institution affiliated parties," as defined in section 3(u) of FDIA.30

The resulting negative inference is overwhelming. If the federal banking agencies did not have the authority to assess a civil money penalty for a violation of BSA or any BSA-related regulation prior to the enactment of the 1994 legislation, it must be concluded that such agencies do not have the power to impose such civil money penalties if it is determined that the Secretary of the Treasury has not, in fact, made any delegation of such authority to the banking agencies following the enactment of the 1994 legislation. In this regard, there is nothing in the Treasury Regulations which indicates or confirms that such delegations have been made. On the contrary, the provisions of sections 103.56(a), 103.56(d), and 103.57 of the Treasury regulations31 in their present form state very clearly that the Secretary of the Treasury has not delegated to the federal banking agencies the authority to assess civil money penalties for violations of BSA and BSA-related rules and regulations.32 In view of the failure of the Secretary of the Treasury to make any delegation under 31 U.S.C. § 5321(e)(1), it must be concluded that the federal banking agencies do not have the authority to impose civil money penalties for violations of BSA or BSA-related rules and regulations.

The foregoing conclusion is supported by the legislative history of section 406 of Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994.33 The following excerpt was taken from the House Conference Report regarding section 406, as finally enacted:

Imposition of Civil Money Penalties Under the BSA

Civil penalties are assessed by the Department of the Treasury’s Office of Financial Enforcement (OFE). ... OFE currently receives civil penalty referrals from federal banking agencies, the IRS, financial institutions and others. OFE sends each referral to IRS’s Criminal Investigative Division to determine whether it should be handled as a criminal investigation or whether such investigation is already underway. Once OFE receives clearances from IRS to pursue a civil penalty case, the referral is categorized as formal and assigned to a BSA specialist for processing. The Assistant Secretary for Enforcement makes the final decision to assess a civil penalty.

In the past, OFE did not process BSA civil penalty cases in a timely manner. ... While OFE’s record has improved substantially in the last few years, the Conferees believe that it would be more efficient to allow the federal banking agencies to impose civil penalties directly.

Section 406 of the Conference Report requires the Secretary [of the Treasury] to delegate any authority to assess a civil money penalty on depository institutions under BSA to the appropriate federal banking agencies, subject to any term or condition imposed by the Secretary. Because these agencies already examine depository institutions for BSA compliance, the authority to impose penalties flows naturally from their current responsibilities. Furthermore, the federal banking agencies currently have penalty authority and experience under other banking laws. [It is contemplated that] OFE would still be able to oversee the process and ensure that penalties are consistently imposed [by the federal banking agencies pursuant to the delegation required by the new law].34 [Emphasis added.]

Again, there is no record or any indication in the implementing Treasury regulations35 that the Secretary of the Treasury made the delegations of authority to assess civil money penalties to the federal banking agencies contemplated and required by 31 U.S.C. § 5321(e). In the absence of any such delegation, there is no legal basis for a determination that the agencies have the power to impose a civil money penalty for violations of BSA or any BSA-related rule or regulation.

Fourth (and last reason to show that the "any law or regulation" provision inserted in section 8(i) of FDIA by section 907 of FIRREA36 did not change the statutory enforcement scheme established by Congress that existed in 198737), there is a substantial and disproportionate difference between the legal standard of proof required to impose a civil money penalty for a violation of law under section 8(i)(2)(A) of FDIA38 and the standard of proof required to assess a civil money penalty pursuant to section 5321 of BSA,39 as implemented by section 103.57 of the Treasury regulations.40

In order to impose a penalty order under section 8(i)(2)(A) of FDIA for a violation of BSA or any of its implementing regulations, the federal banking agencies would not be required to show that the violation was the result of "willful" misconduct.41 For exactly the same violation, however, the Treasury Department would have to show that the violation was "willful."42 There is no indication of any kind in any of the legislative history of any of the statutes reviewed in this article that Congress intended to authorize the federal banking agencies to impose a civil money penalty for a violation of BSA and at the same time prohibit the Secretary of the Treasury from imposing the same penalty for the same violation. In the absence of any such indication, it must be presumed that Congress intends to provide all persons and entities subject to the requirements of BSA with the same protections and immunities vis-à-vis the degree of misconduct that must be shown in order to establish the liability of a person or entity to pay a civil money penalty for such misconduct.

CONCLUSION

The federal bank regulatory agencies do not have the authority to impose an order for the payment of a civil money penalty for a violation of: (1) the statutory provisions of the Bank Secrecy Act, (2) regulations promulgated by the Secretary of the Treasury to implement the Bank Secrecy Act (31 C.F.R. Part 103), or (3) regulations promulgated by the banking agencies pursuant to the statutory mandate in section 8(s)(1) of FDIA.43

Further, the federal banking agencies do not have the authority to impose any type of enforcement sanction against an individual director, officer, or employee of a financial institution based solely upon a violation of: (1) the statutory provisions of the Bank Secrecy Act, (2) regulations promulgated by the Secretary of the Treasury to implement the Bank Secrecy Act (31 C.F.R. Part 103), or (3) regulations promulgated by the banking agencies pursuant to the statutory mandate in section 8(s)(1) of FDIA.44

ENDNOTES

1. Pub. L. No. 91-508, Titles I and II, 84 Stat. 1114, 1116 (1970) (codified as amended in various sections of titles 12 and 31 of the United States Code, and adding 12 U.S.C. §§ 1730d and 1829b). For discussions of the background and historical development of the Bank Secrecy Act and related federal statutes, see James D. Harmon, Jr., United States Money Laundering Laws: International Implications, 9 N.Y.L.Sch. Jnl. Int’l. and Comp. L. 1 (1988), and John K. Villa, A Civilized View of Bank Secrecy Act Enforcement and the Money Laundering Statutes, 37 Catholic Univ. L.Rev. 489 (1988).

2. See, e.g., Bank Secrecy Act of 1982, Pub. L. No. 97-258, title IV, 96 Stat. 877 and 995 (codified as amended at 31 U.S.C. §§ 5311-5314, 5316-5324 (1982, Supp. II 1984 & Supp. IV 1986)); the Money Laundering Control Act of 1986, Pub. L. No. 99-570, subtitle H of title I, 100 Stat 3207-27 (codified as amended at 12 U.S.C. §§ 1818(i)(2)(i) and 1818(s)(1)-(3); 18 U.S.C. §§ 1956-57; 31 U.S.C. §§ 5318 and 5321 (Supp. IV 1986)); the Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4354 and 4378 (codified as amended at 18 U.S.C. §§ 1956-57 (Supp. 1989)); the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. 101-73, titles II and IX, 103 Stat. 187, 450, 459 and 462 (codified as amended at 12 U.S.C. §§ 1818(i)(2)(A)(ii) (Supp. 1989)); the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. No. 103-325, title I, and the Money Laundering Suppression Act of 1994, Pub. L. No. 103-325, title IV, 108 Stat. 2247 (codified as amended adding new subsection (e) to 31 U.S.C. § 5321 (Supp. 1994)).

3. Subparts A through G of Part 103 of Chapter 1 of Title 31, Code of Federal Regulations, 31 C.F.R. Part 103, as periodically amended over the past 20 years.

4. The phrase "federal bank regulatory agencies" is a collective designation for the Office of the Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC"), the Board of Governors of the Federal Reserve System ("Fed"), the Office of Thrift Supervision ("OTS"), and the National Credit Union Administration ("NCUA"). Each of those agencies adopted implementing rules and regulations pertaining to the Bank Secrecy Act, which became effective on January 27, 1987, as follows: OCC: Part 21 of Chapter I of Title 12, 12 C.F.R. §§ 21.1-21.21; FDIC: Subpart B of Part 326 of Chapter III of Title 12, 12 C.F.R. §§ 326.0-326.8; Fed: Subpart F of Part 208 of Chapter II of Title 12 (Regulation H), 12 C.F.R. §§ 208.60-208.64; OTS: Subpart F of Part 563 of Chapter V of Title 12, 12 C.F.R. § 563.177; and NCUA: Part 748 of Chapter VII of Title 12, 12 C.F.R. §§ 748.0-748.3.

5. It is clear from the legislative history of the various Congressional enactments pertaining to the Bank Secrecy Act and the rules and regulations that have been promulgated to implement such laws that the Department of the Treasury has been designated as the lead agency primarily responsible for the enforcement of its prohibitions and limitations (including the imposition of both civil and criminal sanctions) and the interpretation of implementing regulations regarding enforcement. See, 31 U.S.C. §§ 5311, 5318, 5320, 5321 and 5329, and 31 C.F.R. §§ 103.55-103.57, 103.60, 103.80 and 103.85. The role of the Secretary of the Treasury regarding the proper interpretation and enforcement of the Bank Secrecy Act, therefore, is very similar to the lead role of the Board of Governors of the Federal Reserve System regarding the limitations and requirements of section 23A of the Federal Reserve Act (12 U.S.C. § 371c) and Regulation O (12 C.F.R. Part 215) and the statutory provisions implemented by that regulation. See, sections 11(i), 22(g), and 22(h) of the Federal Reserve Act, 12 U.S.C. §§ 248(i), 375a, and 375b, and section 7(k) of the Federal Deposit Insurance Act, 12 U.S.C. § 1817(k).

6. Although technically comprised of other provisions in the United States Code (e.g., 12 U.S.C. §§ 1818(s), 1818(i)(2)(A)(ii) and 1829b, and 18 U.S.C. §§ 1956 and 1957), the provisions codified at 31 U.S.C. §§ 5311-5330 are commonly understood as the Bank Secrecy Act. Except where otherwise noted, therefore, reference to the Bank Secrecy Act is intended as a reference to the cited provisions in title 31 of the U.S. Code.

7. 31 C.F.R. Part 103.

8. Section 1356 of title I of Pub. L. No. 97-258, 99 Stat. 877, 999 (1982) (codified in title 31 of the U.S. Code by adding sections 5318 and 5321). Section 5318 authorized the Secretary of the Treasury to "delegate duties and powers under this subchapter [II of Chapter 53 of Title 31] to an appropriate supervising agency. Such powers included the authority to impose civil money penalties, as provided in section 5321 (31 U.S.C. § 5321). The authority of the Secretary of the Treasury to impose civil money penalties pursuant to section 5321 generally required a showing of willful misconduct on the part of the offender; however, a nominal penalty of $500 could be imposed against an institution (not an individual) for a violation resulting from negligence. 31 U.S.C. § 5321(a)(6). The Secretary of the Treasury has never made a delegation to impose a civil money penalty for a violation of BSA or its implementing Treasury Regulations to any of the federal bank regulatory agencies pursuant to 31 U.S.C. § 5318.

9. See, sections 11(i), 22(g), and 22(h), and 23A of the Federal Reserve Act, 12 U.S.C. §§ 248(i), 375a, 375b and 371c(1982); sections 7(j) and (k), 8(i) and 18(j) of the Federal Deposit Insurance Act, 12 U.S.C. §§ 1817(j), 1817(k), 1818(i) and 1828(j) (1982); and Regulation O of the Federal Reserve Board, 12 C.F.R. Part 215.

10. Section 1359(a) of Pub. L. No. 99-570, 100 Stat. 3207-18 (codified as amended at 12 U.S.C. §§ 1818(i)(2)(i) and 1818(s) (1)-(3) (Supp. IV 1986)). See, also, 31 U.S.C. § 5318(a)(2) and 5318(h). The latter provisions are very similar to 12 U.S.C. § 1818(s) and were added in 1994 by section 413(b)(1) of Pub. L. No. 103-325.

11. Section 1359(a)(1) of Pub. L. No. 99-570 added a new subsection (s) to section 8 of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(s). As amended, section 8(s)(1) requires each agency to promulgate regulations requiring insured depository institutions to adopt policies and procedures designed to assure compliance with BSA. Section 8(s)(3) provides that for violations of any regulation promulgated under section 8(s)(1) (failure "to establish and maintain procedures described in paragraph (1) [of section 8(s)]"), the agency "shall issue an order in the manner prescribed in subsection (b) or (c) [of section 8] requiring such bank to cease and desist from its violation of ... regulations prescribed under this subsection."

12. Id. The new section 8(s)(3) actually did more than merely empower the banking agencies to issue cease and desist orders under sections 8(b) or 8(c) of the Federal Deposit Insurance Act, 12 U.S.C. §§ 1818(b) and 1818(c), for violations of regulations promulgated under section 8(s)(1). Since the agencies already possessed the power to use the cease and desist sanction to enforce such regulations, section 8(s)(3) may be viewed as merely duplicating a prior grant of authority. On the other hand, the real purpose of the new statute may be reflected in its literal interpretation, which mandates the issuance of a cease and desist order against any institution for violations of regulations promulgated pursuant to section 8(s)(1) ("... the agency shall issue an order..."). It should be noted also that a cease and desist order issued pursuant to section 8(s)(3) can be imposed only upon an institution, not an individual officer, director, or employee of such institution. The infractions specifically delineated in sections 8(s)(3)(A) and (B) for which remedial enforcement action is mandated pertain to deficiencies or problems with the operating "procedures" of the institution. The legislative focus on institutional "procedures" is important. First, it explains the limitations in the statute regarding the type of sanctions that can be imposed as well as the identity of the target or object of such sanctions. Second, such limitations are imposed in the statute notwithstanding the well-recognized principle that any problems or deficiencies that might arise regarding the institution’s operating procedures can occur only through the conduct of the institution’s officers or employees. Operating procedures cannot be implemented by the institution; they can be implemented only by its officers and employees. Nevertheless, the statute does not include such persons as possible targets or objects of regulatory action for the deficiencies identified in sections 8(s)(3)(A) and (B). The term "institution affiliated party," as defined in section 3(u) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(u), is not referenced or incorporated into section 8(s)(3).

13. Section 1359(a)(2) of Pub. L. No. 99-570 amended section 8(i)(2)(i) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(i)(2)(i) (as it existed in 1986), by inserting a reference to the newly added subsection 8(s), thus authorizing the federal bank regulatory agencies to impose a civil money penalty for a violation of a cease and desist order issued pursuant to section 8(s)(3) of the Federal Deposit Insurance Act.

14. The reference "subchapter II of chapter 53 of title 31" is to 31 U.S.C. §§ 5311-5321 and is commonly referred to as the Bank Secrecy Act.

15. Procedures for Monitoring Bank Secrecy Act Compliance, 52 Fed. Reg. 2858 (1987), adding 12 C.F.R. §§ 21.21 [OCC], 208.14 (recodified as 208.63) [Regulation H of Fed], 326.8 [FDIC], 563.177 [OTS], and 748.2 [NCUA].

16. None of the regulations promulgated by the federal banking agencies contain any provisions regarding their enforcement by the agency. As noted previously, the statutory authority of the agencies to impose civil money penalties for violations of law was very limited (see, fn. 9, supra) and while amended in 1986 to provide for the assessment of such penalties for violations of a cease and desist order issued under section 8(s) (see, fn. 13, supra), such penalties were not authorized for a violation of the Bank Secrecy Act itself or any of its implementing regulations.

17. The statutory authority of the Secretary of the Treasury to impose civil money penalties for violations of the Bank Secrecy Act and its implementing regulations is explicit and unambiguous, and was enacted by Congress as part of the 1982 legislation in title IV of Pub. L. No. 97-258, which added 31 U.S.C. § 5321. See, fn. 8, supra.

18. Amendments to Implementing Regulations Under the Bank Secrecy Act, 52 Fed. Reg. 11436 (1987), adopting, inter alia, 12 C.F.R. §§ 103.56 and 103.57.

19. The delegation of authority to the named federal banking agencies is specifically limited to the "authority to examine institutions to determine compliance " with the requirements of the Treasury Regulations. 31 C.F.R. § 103.56(b)(1). See, also, 31 C.F.R. § 103.56(f) ("... any agency to which compliance has been delegated under paragraph (b) [of section 103.56] may examine any books, papers, records, or other data of domestic financial institutions relevant to the recordkeeping or reporting requirements of this part.")

20. 31 U.S.C. §103.56(a) designates the "Assistant Secretary (Enforcement)" as the person with "overall authority for enforcement and compliance, including coordination and direction of procedures and activities of all other agencies exercising delegated authority under [section 103.56(b) of] this part." The delegation of enforcement authority to the Assistant Secretary for Enforcement is reiterated in section 103.56(d) which specifies that the "authority for the imposition of civil money penalties for violations of this part lies with the Assistant Secretary, and in the Assistant Secretary’s absence, the Deputy Assistant Secretary (Law Enforcement)." [The apparent inconsistency between section 103.56(a) which designates the "Assistant Secretary (Enforcement)" and section 103.56(d) which designates only the "Assistant Secretary" is technical; common sense compels the conclusion that both references are to the same person.]

21. 31 U.S.C. § 5321.

22. 31 C.F.R. § 103.57.

23. Pub. L. No. 101-73, section 907, 103 Stat. 462 (codified as amended at 12 U.S.C. § 1818(i) (2)(A)(i))

24. Id. Prior to August 7, 1989 when FIRREA became effective, the authority of the federal bank regulatory agencies to impose a civil money penalty based upon a violation of law was very restricted and was limited to violations of only few specified laws. See, fn. 9, supra, and accompanying text.

25. 12 U.S.C. § 1818(s)(3).

26. 135 Cong. Rec. S2393 (daily ed., March 8, 1989). Interestingly, this gloss on the language "any law or regulation" in the new civil money penalty statute was prepared by the Department of the Treasury and was presented to the U.S. Senate by the Chairman and then ranking member of the Committee on Banking, Housing and Urban Affairs as part of a section-by-section analysis of the Senate bill (S2393) before its final passage.

27. The phrase "BSA-related rules and regulations" used here and in the text following refers to the regulations promulgated by the Secretary of the Treasury (31 C.F.R. Part 103) and to the regulations promulgated by the federal bank regulatory agencies pursuant to the requirement in 12 U.S.C. § 1818(s)(1), as such regulations are identified in fn. 15, supra.

28. Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. No. 103-325, § 406, 108 Stat. 2247 (1994) (adding a new paragraph (e) and codified as amended at 31 U.S.C. § 5321(e)).

29. Previously (in 1982), Congress had only "authorized" the Secretary of the Treasury to delegate the authority to impose civil money penalties to the federal banking agencies for violations of BSA and its implementing Treasury Regulations. 31 U.S.C. § 5318. See, fn. 8, supra, and accompanying text.

30. 12 U.S.C. § 1813(u). It should be noted that the cited statute (12 U.S.C.§ 5321(e)(1)) includes two parenthetical references to definitions in section 3 of FDIA. One reference (viz., the definition in section 3(c)) specifically identifies the target of the civil money penalty being authorized. The failure to include one more definition (viz., the definition in section 3(u)) arguably evidences a clear Congressional intent to limit the scope of the delegation provided in the statute to penalty orders imposed on institutions, not individuals.

31. 12 C.F.R. §§ 103.56(a), 103.56(d) and 103.57.

32. On May 8, 2001, the author addressed a letter to Francine J. Kerner, Acting Assistant General Counsel (Enforcement) for the Assistant Secretary of the Treasury for Law Enforcement, asking whether the Secretary of the Treasury has, in fact, made any delegations to the federal banking agencies to assess civil money penalties pursuant to 31 U.S.C. § 5321(e)(1). In a telephone conference on May 31, 2001, William Langford in the office of the Acting Assistant General Counsel (Enforcement) advised that the Secretary of the Treasury had not made a delegation to any of the federal banking agencies pursuant to 31 U.S.C. § 5321(e)(1). Notwithstanding two follow-up written requests for written confirmation of such advice, the Acting Assistant General Counsel (Enforcement) demurred (but did not dispute the accuracy of the information provided by Mr. Langford), suggesting that confirmation of a delegation of authority from the Secretary of the Treasury pursuant to 31 U.S.C. § 5321(e)(1) should be made through the Comptroller of the Currency, or one of the other federal bank regulatory agencies. Representatives of all of the federal bank regulatory agencies reported orally that the Secretary of the Treasury has not made any delegation pursuant to 31 U.S.C. § 5321(e)(1). Consequently, and even though undocumented, it is a virtual certainty that the Secretary of the Treasury has not delegated the authority to impose civil money penalties for BSA violations to the federal banking agencies, as contemplated and required by 31 U.S.C. § 5321(e)(1).

33. Cf. fn. 28, supra.

34. H.R. Conf. Rept. No. 103-652 at 190, reprinted in 1994 U.S.C.C.A.N. 1977, 2020.

35. The delegations of authority by the Secretary of the Treasury provided in 12 C.F.R. § 103.56 have not been amended substantively since 1987.

36. Cf. fn. 25, supra.

37. See, fns. 16 through 20, supra, and accompanying text.

38. 12 U.S.C. § 1818(i)(2)(A). This a so-called "First Tier" penalty, as distinguished from "Second Tier" and "Third Tier" penalties provided for in 12 U.S.C. §§ 1818(i)(2)(B) and 1818(i)(2)(C), respectively.

39. 31 U.S.C. § 5321.

40. 31 C.F.R. § 103.57.

41. This well-recognized principle was established almost 20 years ago in Fitzpatrick v. FDIC, 765 F.2d 569 (6th Cir. 1985), when the authority of the federal banking agencies to impose civil money penalties for violations of law was limited to violations of certain laws (see, fn. 9, supra) such as sections 22(h) and 23A of the Federal Reserve Act (12 U.S.C. §§ 375b and 371c) and Regulation O of the Federal Reserve Board (12 C.F.R. Part 215), as provided under the authority of the Financial Institutions Regulatory and Interest Rate Control Act of 1978, Pub. L. No. 95-630, 92 Stat. 3641. The Court in Fitzpatrick imposed liability for the payment of a civil money penalty for infractions of law that were essentially technical in nature and the product of careless oversight: "While it may be argued Congress did not intend to impose a strict liability standard for violations under officers’ and directors’ oversight, it is clear...that willfulness is not an essential element of [proof to establish liability for] the violation." [Emphasis added.] Id. at 576.

42. See, 31 U.S.C. §§ 5321(a)(1) and (5), as implemented by 31 C.F.R. §§ 103.57(a) [violations of § 103.22], 103.57(b) and (c) [violations of § 103.32], 103.57(e) [violations of § 103.63], and 103.57(f) [violations of any reporting requirement under Part 103, except §§ 103.24, 103.25, and 103.32]. All of the foregoing statutes and regulation require a showing that the violation in question was "willful" before a civil money penalty can be assessed for such violation.

43. Cf. fn. 15, supra.

44 It appears that the OCC agrees with this conclusion. After the jurisdiction and authority of the agency was challenged in a formal civil money penalty action it had initiated against a national bank officer for an alleged violation of a regulation promulgated by the OCC (12 C.F.R. § 21.21) to implement the Bank Secrecy Act, the OCC filed a formal "Notice of Dismissal" requesting that the presiding Administrative Law Judge dismiss the charges and strike the case from her docket. The agency was subsequently ordered to either issue a final order dismissing all charges, or respond to a motion for summary disposition filed on behalf of the accused banker. The OCC took final action dismissing the case on August 27, 2001. In Re Dale E. Washburn, OCC Docket No. AA-EC-01-04 (2001). In contrast with the cited OCC case, the Federal Reserve Board recently issued a civil money penalty order requiring the payment of $10 Million by U.S. Trust Corporation in New York and its subsidiary bank, the United States Trust Company based upon an alleged violation of section 208.63 of Regulation H (12 C.F.R. 208.63) which is identical to the OCC regulation at 12 C.F.R. 21.21. [Both regulations were adopted pursuant to the mandate in section 8(s)(1) of the FDI Act, 12 U.S.C. § 1818(s)(1).] However, it should be noted that the Federal Reserve penalty order, which was issued on July 12, 2001, was based upon a negotiated consent agreement between the parties. Since the legal authority and jurisdiction of an agency to initiate a formal enforcement action cannot be based upon the consent of the targeted party, that action should not stand as any type of legal precedent.

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