A government pilot program that subjects high-risk national banks to aggressive Bank Secrecy Act exams is being expanded, a top regulator said Monday.
The program, which currently focuses on four banks in heavy drug- trafficking areas, will soon target banks in 21 such places across the country, Comptroller of the Currency John D. Hawke Jr. said.
In addition, the program will continue to gather tips from law enforcement agencies. Such tips led to intensive anti-laundering exams at three additional banks last year.
The pilot program has proven so successful, Mr. Hawke said, that the Office of the Comptroller of the Currency will repeat it in other compliance areas. For example, banks with high numbers of consumer complaints could be targeted for intensified fair-lending exams, he said.
"I believe that this approach to compliance management is the wave of the future," Mr. Hawke told the American Bankers Association's regulatory compliance conference.
The announcement was part of a broader speech on the history and future of bank regulation.
Unlike many of the economy's key sectors that have experienced deregulation in recent years, Mr. Hawke said, banks have been subjected to a "profusion" of new laws.
"I think most bankers would agree that the hand of government has, if anything, become progressively heavier," he said.
For every move forward, such as the elimination of deposit interest rate ceilings or limits on geographic expansion, a new consumer protection law been enacted, Mr. Hawke said.
Moreover, he said, in today's "fishbowl" environment the stakes are even higher for banks. Compliance failures can lead to "lawsuits, social stigma, reputational damage, and lost customers."
But he said the banking industry has no one to blame but itself.
"Too often over the years, bankers and their trade associations have passed up opportunities to address these abuses through their own codes of conduct or self-regulatory mechanisms," he said. "That's left Congress with little choice but to adopt legislation to address consumers' concerns."
Mr. Hawke cited the Truth-in-Savings Act as an example. "One could see, years in advance, that Truth-in-Savings was coming down the line," he said. But banks "failed to address concerns."
More such consumer-oriented legislation is on the way, Mr. Hawke predicted. For example, he said, lawmakers working on financial modernization legislation are now addressing the issue of privacy, because banks dropped the ball on it.
The OCC's pilot program is based on the Justice Department's list of "high-intensity drug-trafficking areas," of which there are 21. Beginning next year, the Comptroller's Office will focus on one bank in each region.
Initially, the agency focused on one bank apiece in only four areas: Miami, New York/New Jersey, Los Angeles, and the "southwest border," which includes parts of California, New Mexico, and Texas.
According to Mr. Hawke, three of the four banks reviewed were found to have significant compliance problems and were forced to take corrective action. One bank, $97 million-asset Broadway National Bank in New York, was hit with a cease-and-desist order.
Under the seven-part order, Broadway agreed to develop a system of internal controls to comply with the Bank Secrecy Act, and to hire a certified public accountant to review those controls.
To date, Broadway's cease-and-desist order has not been lifted. Mr. Hawke declined to name the other banks that had compliance problems.
Ralph E. Sharpe, deputy comptroller for community and consumer policy, runs the pilot program through the agency's national anti-laundering group.