Statements to the Congress - Statement by Robert P. Forrestal - Transcript

Federal Reserve Bulletin, Nov, 1991

Statement by Robert P. Forrestal, President, Federal Reserve Bank of Atlanta, before the Committee on Banking, Finance and Urban Affairs, U.S. House of representatives, September 13, 1991

I am pleased to appear today to discuss with you the role of the Federal Reserve Bank of Atlanta in the supervision of the Florida offices of the Bank of Credit and Commerce International (BCCI), and in the supervision of the NBG Financial Corporation, the parent bank holding company of the National Bank of Georgia (NBG).

My remarks will first address BCCI. Since the previous witnesses have set forth the supervisory and regulatory framework within which the Federal Reserve System operates with respect to its supervision of international branches and agencies, I will therefore confine my remarks regarding BCCI to the Federal Reserve Bank of Atlanta's supervision and regulation of BCCI's offices in Miami, Boca Raton, and Tampa, Florida.

HISTORY OF BCCI IN THE SIXTH FEDERAL RESERVE DisTRICT

The BCCI-Miami agency opened on March 15, 1982; the Boca Raton agency opened on September 12, 1983; and the Tampa agency opened on June 29, 1984. Each of these offices was licensed by the Comptroller's Office of the Department of Banking and Finance of the State of Florida. These were not the initial entries by BCCI into the United States, as its first office was opened on September 1, 1981, in San Francisco. Other offices in Los Angeles (February 7, 1983) and New York (April 16, 1984) were also opened.

BCCI also had an administrative office in Miami that supervised Latin American and Caribbean activities and provided back office support to the three Florida agencies. The administrative office was permitted under Florida law and was supervised by the Florida Department of Banking and Finance.

The Miami agency managed and coordinated the activities of the Tampa and Boca Raton offices, including regulatory reporting to the Federal Reserve. From the opening of the BCCIMiami office, the Federal Reserve Bank of Atlanta carried out its supervisory responsibilities pursuant to the International Banking Act of 1978. As was the case with other Florida agencies under that act, our responsibility as the residual supervisor of the state-licensed agencies was essentially to ensure that the BCCI Florida offices received timely examinations from the licensing authority, the State of Florida.

During this time, our examiners participated in these examinations in a limited manner. Our participation normally consisted of a one- or two-day visitation of the agency in which we conducted a review of financial reports submitted to the Federal Reserve Bank of Atlanta and a review of compliance with federal banking laws, including the Bank Secrecy Act. These visitations coincided with the state's examinations, and during the visitations our examiners learned the state's preliminary findings. After having conducted the compliance visit, Reserve Bank examiners wrote a memorandum detailing their findings and the state's preliminary results. Copies of the state's final report of examination and BCCI's responses were forwarded to the appropriate offices within the Federal Reserve System. Irregularities in compliance with the Bank Secrecy Act were detected at various times during our visitations and resulted in two criminal referrals, which are described below. In 1983, the Treasury Department referred numerous institutions, including BCCI-Miami, to our attention after having found technical deficiencies in their reporting of transactions subject to the Financial Recordkeeping Act. The deficiencies concerned improper completion of forms designed to report individual cash transactions of 10,000 or more. We found additional technical compliance problems at BCCI-Miami in a visit in 1984, in which examiners noted that the agency had failed to file currency transaction forms for three cash transactions of more than $10,000. The agency filed the forms during the examination. Both cases represented isolated technical problems and did not raise suspicions of money laundering. In each instance, agency management took corrective action. In March 1985, while visiting during the state's examination, Reserve Bank examiners detected suspicious transactions carried out by a customer of BCCI-Miami. After having become aware of the transactions, the agency ceased doing business with the customer. To our knowledge, this customer has not been implicated in subsequent indictments of BCCI.

After the receipt in August 1985 of the state's March 1985 final Report of Examination of BCCI-Miami, which noted continued asset problems, the Federal Reserve Bank of Atlanta conducted an independent examination of the Miami office in October 1985. The examination revealed a significant deterioration in asset quality. However, no further evidence of suspicious transactions was noted at the time. As a result of the deterioration in asset quality, the Atlanta Reserve Bank requested that BCCI begin quarterly reporting on its classified assets.