Friday, April 19, 2019

OCC to Toughen Exams in Response to United States Senate Permanent Subcommittee On Investigations

Posted by David September 14, 2012 4:59pm

Photo Credit: Stuart Miles


The United States Senate Permanent Subcommittee onInvestigations (“PSI”) attributed HSBC’s ineffective and/or inadequateanti-money laundering policies and procedures to lax regulatory oversight. HSBCwas cited by the OCC in 2010 for multiple AML deficiencies, including:

  • A massive backlog of over 17,000 alerts identifying possible suspicious activity that had yet to be reviewed
  • Ineffective methods for identifying suspicious activity
  • A failure to file timely Suspicious Activity Reports with U.S. law enforcement
  • A failure to conduct any due diligence to assess the risks of HSBC affiliates before opening correspondent accounts for them
  • A 3-year failure by HBUS, from mid-2006 to mid- 2009, to conduct any AML monitoring of $15 billion in bulk cash transactions with those same HSBC affiliates, despite the risks associated with large cash transactions
  • Poor procedures for assigning country and client risk ratings
  • A failure to monitor $60 trillion in annual wire transfer activity by customers domiciled in countries rated by HBUS as lower risk
  • Inadequate and unqualified AML staffing
  • Inadequate AML resources
  • AML leadership problems


The PSI criticized the OCC for not treating AML deficienciesas a matter of safety or a management problem. According to the PermanentSubcommittee published document “U.S. Vulnerabilities to Money Laundering,Drugs, and Terrorist Financing: HSBC Case History”, “While the OCC insists thatits AML approach has merit, the HSBC case history, like the Riggs Bank casehistory examined by this Subcommittee eight years ago, provides evidence thatthe current OCC system has tolerated severe AML deficiencies for years,permitted national banks to delay or avoid correcting identified problems, andallowed smaller AML issues to accumulate into a massive problem before OCCenforcement action was taken.”

OCC Exam Changes

In response to these criticisms, the OCC is moving totoughen regulatory examinations going forward, and significant changes arealready being implemented.

According to the Statement of Thomas J. Curry (Comptrollerof the Currency) before the Permanent Subcommittee on Investigations Committeefor Homeland Security and Governmental Affairs, “First, we have alreadyidentified a new approach that we will implement to assure that BSA/AMLdeficiencies are fully considered in a safety and soundness context and aretaken into account as part of the “management” component of a bank’s CAMELSrating. We will direct our examiners to view serious deficiencies in a bank’sBSA/AML compliance area, including program violations, as presumptivelyadversely affecting a bank’s management component rating. We will also provideguidance on how to document application of this approach in determining themanagement component rating.  Second, weare revising and clarifying the operation of our Large Bank BSA Review Team toenhance our ability to bring different perspectives to bear and react on a moretimely basis to circumstances where a bank has multiple instances of mattersrequiring attention, or apparent violations of the required components of itsBSA/AML program. We will also explore how we track and review relevantinformation in this regard and whether new initiatives are appropriate in thatarea as well. Third, we will also revamp our current approach to citing BSA/AMLviolations to provide more flexibility for individual “pillar” violations to becited, and we will identify what steps we can take in our examinations toobtain a holistic view of a bank’s BSA/AML compliance more promptly. One of thereasons for the current OCC approach is that it requires the OCC to focus ondetermining whether the deficiencies in a bank’s program amount to a BSAcompliance program violation, which requires a mandatory cease and desistorder. Therefore, in implementing changes on this point, it will be importantnot to create disincentives to making the tough calls when there are BSAcompliance program violations mandating the issuance of a cease and desistorder.  Finally, we will review otherareas, such as training, staffing, recruitment, policies, and interagencycoordination, to make improvements in our BSA/AML supervision program.”

Key Elements Bank’s Should Consider

Institutions regulated by the OCC should take into accountthe fact that the OCC is making significant changes to its examination approach,especially its composite rating system. Furthermore, it should be noted thatexaminers are looking to evaluate more transactional data to uncoverdeficiencies, rather than relying solely on third-party auditors and internalreviews. Therefore, Compliance Officers must keep informed of industry trendsin the BSA/AML environment and communicate such to the Bank employees.  


Add a comment

  • Required fields are marked with *.

If you have trouble reading the code, click on the code itself to generate a new random code.