[Congressional Record Volume 142, Number 136 (Friday, September 27, 1996)]
[Senate]
[Pages S11549-S11550]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO (for himself, Mr. Kerry, Mr. Faircloth, Mr. 
        Pressler, and Mr. Dodd):
  S. 2144. A bill to enhance the supervision by Federal and State 
banking agencies of foreign banks operating in the United States, to 
limit participation in insured financial institutions by persons 
convicted of certain crimes, and for other purposes; to the Committee 
on Banking, Housing, and Urban affairs.


                THE FOREIGN BANK ENFORCEMENT ACT OF 1996

 Mr. D'AMATO. Mr. President, today I introduce the Foreign Bank 
Enforcement Act of 1996.
  This legislation proposes a number of important modifications to 
statutes governing the activities of foreign banks operating in the 
United States. It reflects the recommendations of Federal and State 
bank regulators. It will enhance the ability of U.S. regulators to 
oversee the 275 foreign banks from 61 countries now operating in the 
United States.
  The world's financial system is increasingly interconnected, and 
foreign banks operate in the United States to a greater degree than 
ever before. These banks now hold more than $1 trillion in U.S. banking 
assets and make approximately 30 percent of the amount of all loans to 
U.S. businesses.
  The integrity of the U.S. financial system is one of our most 
important national assets. This asset is threatened whenever any bank--
domestic or foreign--operating on our shores engages in misconduct or 
fraud. It is therefore imperative that U.S. bank regulators possess all 
of the tools necessary to supervise the U.S. operations of foreign 
banks with the same care and attention as those of our domestic banks.
  Over the past several years, the activities of rogue traders at banks 
and securities firms have shaken world financial markets. Last year, 
the $1.3 billion in hidden losses from derivatives trading by Nicholas 
Leeson in Singapore brought down the venerable Barings Bank in Great 
Britain. In September 1995--and much closer to home--Federal bank 
regulators learned that Daiwa Bank's New York branch had incurred 
losses of $1.1 billion from the unauthorized trading activities of just 
one employee, Mr. Toshihide Iguchi, over a period of 10 years.
  Mr. President, the Daiwa matter is particularly troubling. Although 
Daiwa senior management learned of these hidden trading losses of $1.1 
billion in July 1995, they concealed the losses from U.S. bank 
regulators for almost 2 months. Even worse, Daiwa senior management 
directed Mr. Iguchi to continue his fraudulent transactions during July 
and August 1995 to avoid detection of the losses.
  In November 1995, Federal and State bank regulators took the stern, 
but entirely appropriate step, of terminating all of Daiwa Bank's 
operations in the United States. The bank also paid a criminal fine of 
$340 million, and two of its officials entered guilty pleas to criminal 
offenses.
  In the wake of the Daiwa scandal, I asked the Federal Reserve to 
conduct a full inquiry into this matter and to examine our existing 
scheme for regulating the U.S. activities of foreign banks. The Banking 
Committee also held a hearing in November 1995 on Daiwa and related 
matters at which Federal and State bank regulators testified.
  Mr. President, it is clear that we must learn from the Daiwa scandal. 
Over the past year, the Banking Committee has worked with Federal and 
State regulators, including the Federal Reserve and the New York State 
Banking Department, to identify any limitations in the existing laws 
governing the U.S. operations of foreign banks.
  After reviewing the recommendations of Federal and State bank 
regulators, I today introduce the Foreign Bank Enforcement Act. This 
legislation would make the following five changes to the statutory 
scheme now governing the U.S. operations of foreign banks.
  First, it would clarify that the Federal Reserve possesses the 
statutory authority to set conditions for the termination of a foreign 
bank's activities in the United States. Under the International Banking 
Act of 1978, the Federal Reserve may order the complete termination of 
a foreign bank's branches and agencies in the U.S. This amendment would 
make explicit that the Federal Reserve also may issue, on an 
involuntary basis, a termination order that sets specific conditions on 
the termination of a foreign bank's U.S. activities. These conditions 
might include requiring the terminated bank to maintain the records of 
its U.S. activities in the U.S., to make its officials available in the 
U.S. to facilitate U.S. investigatory efforts, and to escrow funds in 
the U.S. to meet contingent liabilities after the foreign bank has left 
the U.S.

  Second, this bill would clarify the authority of federal banking 
agencies to remove convicted felons from the banking industry. Under 
Section 8(g) of the Federal Deposit Insurance Act, the Federal Reserve 
and other Federal banking agencies may suspend and permanently bar from 
the banking industry persons convicted of certain felonies. This 
amendment would make clear that Federal banking agencies possess this 
authority with regard to persons who are not actually employed by a 
banking organization.
  Third, the Foreign Bank Enforcement Act would expand the current 
automatic bar on the employment of persons convicted of a crime 
involving dishonesty, breach of trust, or money laundering. Under 
Section 19 of the Federal Deposit Insurance Act, a person convicted of 
such crimes may not work for an insured depository institution without 
the approval of the Federal Deposit Insurance Corporation; it does not 
expressly bar the future employment of a convicted person by a bank 
holding company, an Edge or Agreement corporation, or a U.S. branch or 
agency of a foreign bank. For instance, under the current Section 19, 
Mr. Iguchi, the senior Daiwa official who caused the bank's $1.1 
billion trading loss, would not automatically be barred from working 
for another U.S. branch or agency of a foreign bank. This amendment 
would close this loophole.
  Fourth, this legislation would increase the ability of the federal 
bank regulators to obtain from foreign bank supervisors critical 
examination and supervision-related information concerning foreign 
banks operating in the U.S. Specifically, it would amend the 
International Banking Act of 1978 to provide explicitly that federal 
bank regulators may keep confidential critical bank-examination 
information obtained from foreign supervisors. This provision would not 
protect such information from disclosure to Congress or to the courts 
and is similar to a provision in the securities laws that allows the 
SEC to maintain the confidentiality of information received from a 
foreign securities authority.
  Finally, this bill would authorize Federal courts, upon a motion of a 
U.S. Attorney, to issue orders authorizing the disclosure of matters 
occurring before a grand jury to State bank regulators. Under current 
law, such disclosures may be made only to Federal bank regulators, and, 
as the Daiwa matter demonstrates, State bank regulators play an 
important role in the supervision of foreign banks operating in the 
U.S.
  Mr. President, we must not allow loopholes in existing law to erode 
the confidence of the American people in the integrity of our financial 
system.

[[Page S11550]]

Congress must provide Federal and State bank regulators with all of the 
tools necessary to supervise fully the U.S. operations of foreign 
banks. The Foreign Bank Enforcement Act proposes a number of narrow, 
but important, changes in existing law. It reflects the recommendations 
of the Federal Reserve and other bank regulators. I urge the swift 
approval of this important legislation.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2144

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Foreign Bank Enforcement Act 
     of 1966''.

     SEC. 2. UNAUTHORIZED PARTICIPATION BY CONVICTED PERSONS.

       Section 19 of the Federal Deposit Insurance Act (12 U.S.C. 
     1829) is amended--
       (1) in subsection (a), by striking ``Corporation'' and 
     inserting ``appropriate Federal banking authority''; and
       (2) by adding at the end the following new subsection:
       ``(c) Definition.--For purposes of this section--
       ``(1) the term `appropriate Federal banking authority' 
     means--
       ``(A) the Corporation, in the case of any insured 
     depository institution, except as specifically provided in 
     subparagraphs (B), (C), and (D), or in the case of any 
     insured branch of a foreign bank;
       ``(B) the Board of Governors of the Federal Reserve System, 
     in the case of any bank holding company and any subsidiary 
     thereof (other than a bank), uninsured State branch or agency 
     of foreign bank, or any organization organized and operated 
     under section 25A of the Federal Reserve Act or operating 
     under section 25 of the Federal Reserve Act;
       ``(C) the Comptroller of the Currency, in the case of any 
     Federal agency or uninsured Federal branch of a foreign bank; 
     and
       ``(D) the Office of Thrift Supervision, in the case of any 
     savings and loan holding company and any subsidiary thereof 
     (other than a bank or a savings association) or any 
     institution that is treated as an insured bank under section 
     8(b)(9); and
       ``(2) the term `insured depository institution' shall be 
     deemed to include any institution treated as an insured bank 
     under paragraph (3), (4), or (5) of section 8(b) or as a 
     savings association under section 8(b)(9).''.

     SEC. 3. REMOVAL ACTIONS AGAINST PERSONS CONVICTED OF 
                   FELONIES.

       Section 8(i)(3) of the Federal Deposit Insurance Act (12 
     U.S.C. 1818(i)(3)) is amended--
       (1) by inserting ``, or any order pursuant to subsection 
     (g),'' after ``any notice''; and
       (2) by inserting ``or order'' after ``such notice''.

     SEC. 4. INTERNATIONAL COOPERATION.

       Section 15 of the International Banking Act of 1978 (12 
     U.S.C. 3109) is amended by adding at the end the following 
     new subsections:
       ``(c) Information Obtained From Foreign Supervisors.--
       ``(1) In general.--Except as provided in subsection (d), 
     the Board, the Comptroller, the Federal Deposit Insurance 
     Corporation, and the Office of Thrift Supervision shall not 
     be compelled to disclose information obtained from a foreign 
     supervisor if--
       ``(A) the foreign supervisor has, in good faith, determined 
     and represented to such agency that public disclosure of the 
     information would violate the laws applicable to that foreign 
     supervisor; and
       ``(B) the United States agency obtains such information 
     pursuant to--
       ``(i) such procedure as the agency may authorize for use in 
     connection with the administration or enforcement of the 
     banking laws; or
       ``(ii) a memorandum of understanding.
       ``(2) Treatment under title 5.--For purposes of section 552 
     of title 5, United States Code, this subsection shall be 
     considered to be a statute described in subsection (b)(3)(B) 
     of such section 552.
       ``(d) Savings Provision.--Nothing in this section 
     authorizes the Board, the Comptroller, the Federal Deposit 
     Insurance Corporation, or the Office of Thrift Supervision to 
     withhold information from the Congress or to prevent such 
     agency from complying with an order of a court of the United 
     States in an action commenced by the United States or by such 
     agency.''.

     SEC. 5. TERMINATION OF FOREIGN BANK OFFICES IN THE UNITED 
                   STATES.

       Section 7(e) of the International Banking Act of 1978 (12 
     U.S.C. 3105(e)) is amended by adding at the end the following 
     new paragraph:
       ``(8) Provisions of a termination order.--An order issued 
     by the Board under paragraph (1) or by the Comptroller under 
     section 4(i) may contain such terms and conditions as the 
     Board or the Comptroller, as the case may be, deems 
     appropriate to carry out this subsection.''.

     SEC. 6. DISCLOSURE OF CERTAIN MATTERS OCCURRING BEFORE GRAND 
                   JURY.

       Section 3322(b) of title 18, United States Code, is 
     amended--
       (1) in paragraph (1), by inserting ``State or Federal'' 
     before ``financial institution''; and
       (2) in paragraph (2), by inserting ``at any time during or 
     after the completion of the investigation of the grand jury'' 
     before ``upon''.
                                                                    ____


          Summary of the Foreign Bank Enforcement Act of 1996


                   section 2. employment prohibition

       Section 19 of the Federal Deposit Insurance Act (``FDI 
     Act''), (12 U.S.C. 1829), prohibits anyone convicted of a 
     criminal offense from being employed by, or participating in 
     the affairs of, an insured depository institution unless they 
     receive the written consent of the FDIC. Section 19 covers 
     only employees of depository institutions and thus does not 
     currently prohibit the employment of convicted felons in a 
     bank holding company, Edge or Agreement Corporation, or in a 
     U.S. branch or agency of a foreign bank. The Act would expand 
     the employment bar to these regulated entities and give 
     authority for regulatory review to the federal regulator with 
     oversight over the affected institution.


                       section 3. removal actions

       Banking regulators are empowered under Section 8(g) of the 
     FDI Act (12 U.S.C. 1818(g)) to suspend or permanently 
     prohibit a person who is indicted or convicted of a felony 
     from participating in the affairs of a regulated institution. 
     Under 8(g), the regulatory order must be made against an 
     ``institution-affiliated party.'' The FDI Act clarifies that 
     even when the person resigns or is terminated by the 
     institution and is thus no-longer an ``institution-affiliated 
     party,'' the regulators may prohibit employment in regulated 
     institutions.


                  section 4. international cooperation

       Section 4 provides that communications from foreign 
     supervisors to U.S. banking agencies may be held 
     confidential. The provision, by making such protection 
     explicit in the law, would encourage foreign bank supervisors 
     to communicate more closely with their U.S. counterparts, 
     thereby contributing to better oversight of banks operating 
     internationally. The provision parallels the authority 
     already available to securities regulators, and would not 
     affect the ability of Congress or the courts to obtain such 
     information.


             section 5. termination of foreign bank offices

       The International Banking Act of 1978 (12 U.S.C. 
     3105(e)(1)) authorizes the Federal Reserve Board and the OCC 
     to terminate a foreign bank's activities in the U.S. The Act 
     is unclear, however, about whether the termination order can 
     require the foreign bank to take actions such as 
     establishment of escrow accounts for the payment of potential 
     fines. Section 5 states explicitly that the regulators may 
     include appropriate terms and conditions in their termination 
     orders.


                    section 6. grand jury disclosure

       Under section 3322 of the U.S. Criminal Code, (18 U.S.C. 
     3322(b)) a federal court may authorize disclosure to federal 
     banking regulators of grand jury information used by law 
     enforcement authorities investigating federal banking law 
     violations. Section 6 expands the scope of this provision to 
     include disclosure of such information to state bank 
     regulatory authorities.
                                 ______