Trying to stay ahead of money launderers, the Federal Reserve Board on Tuesday ordered examiners to spend more time scrutinizing bank compliance programs.
In a letter sent to the head of supervision at each of the 12 reserve banks, the Fed said examiners must ensure banks have specific policies to detect money laundering in every department, including retail and private banking.
Examiners also must evaluate how banks verify the identities of customers, whether auditing procedures are tough enough to catch criminals, and the adequacy of training efforts. Finally, they will review a bank's compliance with revisions to the currency transaction reporting requirements, which take effect in December.
To assist examiners, the Fed also has issued a revised, 290-page anti- money-laundering procedures manual. The Fed last updated its manual in 1995. "It brings us in step with the times," said Richard A. Small, the Fed's assistant director of banking and supervision.
The Fed also has added procedures to ensure banks report suspicious activities that might indicate money laundering. For instance, banks must show that they are using automated or manual systems to spot unusual cash transactions, purchases of money instruments, and funds transfers.
John J. Byrne, senior counsel for the American Bankers Association, said banks should have little trouble with the Fed's new examiner guidance. For instance, he said most institutions already have developed specific money- laundering policies for each line of business. "The Fed is not putting new requirements on the banks," he said.
Regulators have devoted increasing attention to money laundering in recent years.
Prompted by a 1994 federal law, the Fed two years ago adopted risk- focused exam procedures that emphasize management controls to combat money laundering, Mr. Small said. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. implemented new procedures in 1996.
The OCC also formed a task force in June to identify national banks that are targets of money launderers and to develop better examination procedures and training.