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July 15, 2014











Statement by

 Scott G. Alvarez

 General Counsel

 Board of Governors of the Federal Reserve System

 before the

 Subcommittee on Oversight and Investigations

 of the

 Committee on Financial Services

 U.S. House of Representatives

 Washington, D.C.

 July 15, 2014



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 page
 Chairman McHenry, Ranking Member Green, and other members of the subcommittee,

 thank you for the opportunity to testify about the Federal Reserve’s supervisory activities

 pertaining to banking organizations and their account relationships with law-abiding businesses.

 In my testimony, I will describe the legal framework governing the establishment and

 maintenance of customer accounts and the regulatory expectations the Federal Reserve has

 established for the banking organizations we supervise.  I will also highlight related aspects of

 our examination and enforcement process in this area.

 Let me begin by saying that the Federal Reserve believes it is important that banking

 organizations provide services to consumers and businesses whose activities comply with

 applicable laws.  It is equally important that the banks we supervise do not facilitate or

 participate in illegal activity.  Indeed, during the past several years the Federal Reserve has

 provided information to the banking organizations we supervise to clarify the requirements for

 providing account services to law-abiding businesses.

 Legal Framework and the Federal Reserve’s Regulatory Expectations

 Congress, through the Bank Secrecy Act (BSA), requires banking organizations to

 establish and maintain anti-money-laundering (AML) programs designed to detect when services

 provided by the organization are being used for illegal purposes.  By law, each Federal Reserve-

 regulated institution, like other depository institutions, must have a BSA program that contains

 four critical elements, including a system of internal controls to ensure ongoing compliance with

 the BSA, independent testing of the bank’s compliance with the BSA, training of appropriate

 bank personnel, and the designation of an individual responsible for coordinating and monitoring

 day-to-day compliance with the BSA.1  Under the general rubric of “know your customer” laws

 1  See 31 U.S.C. § 5318(h) and Board of Governors Regulation H (12 C.F.R. § 208.63) (BSA program requirements
for state member banks).



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