BANK SECRECY ACT: 

OCC Examination Coverage of Trust

 And Private Banking Services

 OIG-02-016 November 29, 2001

Office of Inspector General

*******

The Department of the Treasury
Contents

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 2

Audit Report.........................................................................................................4 

Results in Brief....................................................................................................4 

Background.........................................................................................................6 

Findings and Recommendations..........................................................................10

Finding 1 Trust and Private Banking Services Were Not Always Covered In A 

 BSA Examination........................................................................................10 

Recommendations 1 and 2............................................................................15 

Finding 2 Trust BSA Examinations Did Not Always Comply With OCC 

 Examination Policy......................................................................................16

Recommendations 3 and 4............................................................................19 

Finding 3 Certain High-Risk BSA Areas Are Seldom Tested.............................20 

Recommendation 5.......................................................................................22 

Finding 4 Opportunities To Improve BSA Handbook Guidance.........................23

Recommendations 6 and 7............................................................................24 

Appendices

Appendix 1: Objectives, Scope, and Methodology..........................................27 

Appendix 2: Summary Of Trust Examination Coverage...................................30 

Appendix 3: Summary Of Private Banking Examination Coverage....................31

Appendix 4: Management Comments ............................................................32 

Appendix 5: Major Contributors To This Report..............................................34 

Appendix 6: Report Distribution.....................................................................35 

Abbreviations

BSA Bank Secrecy Act

CTR Currency Transaction Report

FATF Financial Action Task Force

FCB Foreign Correspondent Banking

HIDTA High Intensity Drug Trafficking Area

OCC Office of the Comptroller of the Currency
Contents

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 3

Abbreviations continued

OIG Office of Inspector General

SAR Suspicious Activity Report

SMS Supervisory Monitoring System
OIG Audit

Report

The Department of the Treasury

Office of Inspector General

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 4

November 29, 2001

John D. Hawke, Jr. 

Comptroller

Office of the Comptroller of the Currency

The Office of the Comptroller of the Currency (OCC) is responsible 

for ensuring that the financial institutions under its supervision 

comply with the Bank Secrecy Act (BSA). In recent years, trust 

and private banking services have become an increasingly 

important component of the BSA and have provided the banking 

industry an increased stream of revenue. 

This is the third in a series of Office of Inspector General (OIG) 

audits covering BSA examinations conducted by OCC. Our earlier 

audits focused on bank wide BSA controls at domestic and foreign 

banks. The overall objective of this audit was to evaluate OCC’s 

examination coverage and supervision of trust and private banking 

services under the BSA. To conduct our audit, we visited OCC 

headquarters and field offices, reviewed examination files and 

interviewed responsible officials and examiners. Our audit covered 

a sample of BSA examinations completed between March 1996 to 

June 2000. A detailed description of the objectives, scope and 

methodology is presented in Appendix 1.

Results in Brief

We believe that OCC has taken many important steps to improve 

BSA examinations. For example, OCC recently revised the 

agency's BSA examination handbooks and created a Deputy 

Comptroller position to supervise among other things BSA work 

performed by compliance examiners. OCC also issued guidance
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 5

which requires each supervisory office to be responsible for 

planning, staffing and coordinating BSA and anti-money laundering 

examinations of bank asset management services. We believe 

these and other changes will provide OCC with a more focused 

approach to performing BSA examinations. However, as discussed 

below, we found that greater OCC attention is warranted in the 

trust and private banking areas. 

First, trust and private banking services were not always included 

as a part of a bank’s overall BSA examination. Specifically, 17.6 

percent of the trust examinations reviewed (6 of 34) did not show

evidence of BSA examination coverage. Similarly, BSA 

examinations at 60 percent of the banks offering private banking 

services (12 of 20) did not cover the private banking services. The 

examinations identified that OCC management were not always 

closely monitoring the results of BSA examinations. (see page 10). 

Second, 32 percent (9 of 28) of the examinations performing BSA 

reviews did not fully comply with OCC BSA examination guidelines. 

We identified examinations where the wrong examination 

handbook had been followed, and instances where examiners did 

not perform the applicable examination procedures. This is similar 

to findings identified in our prior BSA audit report issued in January 

2000. However, our prior report covered bank wide BSA reviews 

and did not specifically examine trust and private banking services. 

(see page 17). 

Third, some of the BSA examinations lacked sufficient testing of 

high-risk transactions commonly associated with money laundering 

or lacked review and evaluation of critical BSA reports that banks 

are required to file. Specifically, examiners did not always test 

wire transfers, transactions with foreign correspondent banks, 

currency transaction reports or suspicious activity reports. For 

example, in both trust and compliance examinations where 

transaction testing was performed, examiners reviewed these areas 

generally less than 40 percent of the time. (see page 20). 

 

Fourth, we believe the BSA examination procedures contained in 

OCC’s newly revised handbooks could be improved through a few 

enhancements, clarifications and reassessment. For example, 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 6

during our audit examiners were using the older BSA handbook that 

contained 12 mandatory procedures, the revised BSA handbook 

contains over 45 mandatory procedures. Similarly, the 

Community Bank handbook grew from 18 to over 30 mandatory 

procedures. In our opinion, the number of new mandatory 

procedures may be too rigid in light of the varying degrees of 

compliance risk at different banks and OCC’s own strategic plan, 

which calls for using risk-focused examination procedures. (see 

page 23). 

Accordingly, we make several recommendations in the report. We 

believe OCC could improve its supervision and BSA examinations 

of trust and private banking services by (1) requiring coverage in all 

BSA examinations, (2) improving the monitoring process used in 

management oversight, (3) completing all mandatory examination 

procedures, (4) ensuring that examiners use the correct 

examination handbook, (5) ensuring that examiners complete 

testing of high risk areas, (6) reassessing whether the new BSA 

examination procedures should be mandatory or optional, and (7) 

reassessing whether the same examination sampling methodology 

contained in the large bank handbook should be used in the 

Community Bank handbook. Our recommendations take into 

account OCC’s risk focused examination approach.

OCC concurred with our reported findings and recommendations 

and has committed to undertake various management actions in 

response to the report. For the full text of OCC’s response to our 

draft report see Appendix 4. Under separate correspondence, OCC 

has committed to take corrective action within 90 days after 

issuance of the final report. 

Background

Trust and private banking services are growing increasingly 

important to the banking industry as a source of revenue. 

However, there is growing worldwide concern that these services 

may be conduits for criminal money laundering. The BSA was 

enacted as one means to stem such activity. OCC is actively 

conducting bank wide BSA examinations that focus on the 

effectiveness of bank internal controls to detect and prevent 

money-laundering activity. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 7

Trust Services

Trust services involve a fiduciary relationship in which the trustee, 

such as a bank, holds and/or manages property for their clients and 

any beneficiaries. Trust accounts are generally set up to achieve 

long term goals in accordance with a trust agreement and offer 

privacy and confidentiality to their bank customers. 

As of September 30, 2000, there were 907 OCC regulated 

National Banks with trust charters whose aggregate trust assets 

exceeded $3 trillion. 

Although typical trust activity may not result in the large, quick 

movement of funds as with private banking activity, trust activity 

can involve all of the high-risk circumstances conducive to money 

laundering. In October 2000, 11 of the world’s largest banks 

agreed to a set of global anti-money laundering guidelines for 

international private banks including those offering trusts. 

In February 2001, the Financial Action Task Force (FATF) on 

Money Laundering, an international policy coordination group, 

issued a report on money laundering methods1. Trusts were 

identified as vehicles that were easy to establish but difficult to 

monitor. Most governments have no registration requirement or 

central registry. In fact, trusts may be formed with the intention of 

taking advantage of strict privacy or secrecy rules in order to 

conceal the identify of the true owner or beneficiary of the trust 

assets. For these reasons, trust accounts are viewed as potential 

vehicles that criminals can use to launder money. The FATF also 

noted that trusts have also been used as a layering technique to 

disguise illicit proceeds of criminal activity and create the 

impression of legitimacy.

Private Banking

In contrast to the tangible nature of bank trust services, private 

banking generally refers to arrangements or relationships between a 

bank and select clients rather than to specific products or services. 

Private banking services are tailored for high net worth individuals 

 

1

 Financial Action Task Force on Money Laundering, Report on Money Laundering Typologies 2000-

2001, February 1, 2001 FATF-XII.
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 8

and include personalized services such as money management, 

financial advice and investment services. Private banking activities 

are generally conducted through relationship managers who provide 

the client the expertise to utilize the various services the bank 

offers. 

In essence, there is no industry wide reporting of private banking 

assets or private banking accounts. Unlike trust charters, OCC 

does not issue a separate charter to those institutions offering 

private banking and the banking industry has no standard definition 

for private banking services. Thus, we were unable to identify the 

total number of OCC regulated banks that offer private banking or 

to estimate the value of the assets covered by private banking 

arrangements. However, a 1999 Washington Post article 

estimated that private banking units manage $15.5 trillion 

worldwide. 

Confidentiality is an attractive and important feature of private 

banking arrangements. Private banking is thought to be particularly 

sensitive to money laundering because large sums of money are 

managed through these confidential private banking arrangements. 

For example, a study found that private banking customers have, 

on average, a minimum investment account of $300,000, and a 

net worth of $2.3 million2. 

Law enforcement and bank regulators have expressed concern 

about offshore private banking activities and their potential to be a 

banking “soft spot” for money laundering3. Some private banking 

customers are known to reside in countries identified as high-risk 

areas for drug trafficking and money laundering. Concerns about 

private banking activities have also been raised in Congress. For 

example, in November 1999, the Senate Permanent Subcommittee 

on Investigations heard testimony that criminals were using certain 

private banking services in attempts to launder money. Recently, 

Congress investigated high profile money laundering cases 

involving private banking customers using offshore accounts or 

 

2

Information on Private Banking and Its Vulnerability to Money Laundering, GAO/GGD-98-19R, Oct. 30, 

1997.

3 Money Laundering: Regulatory Oversight of Offshore Private Banking Activities, GAO/GGD-98-154, 

June 29, 1998. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 9

transactions to facilitate the movement of illicit funds through the 

banking system. 

Money Laundering and the Bank Secrecy Act

Money laundering is the means by which criminals transform their 

illicit proceeds into legitimate appearing assets. This in turn allows 

them to continue to operate and expand their criminal enterprises. 

Money laundering worldwide is estimated to exceed $500 billion a 

year, and more than 170 crimes are identified in the federal money 

laundering statutes. 

Congress enacted The Currency and Foreign Transactions 

Reporting Act4, also known as the BSA, to prevent banks and other 

financial institutions from acting as intermediaries for the transfer 

or deposit of money derived from criminal activity. Congress 

delegated to the Secretary of the Treasury the authority for 

administering the BSA regulations. The implementing regulation, 

31 CFR Part 103, requires financial institutions to file certain 

currency and suspicious activity reports and to maintain certain 

records for possible use in criminal, tax and regulatory proceedings. 

These BSA record keeping and reporting requirements provide a 

paper trail to help law enforcement agencies investigate money 

laundering activities. 

The OCC and other bank regulatory agencies are responsible for 

monitoring financial institutions’ BSA compliance through their 

examination and supervision activities. A primary regulation for 

OCC is 12 CFR § 21.21, which was issued to ensure that all 

national banks establish and maintain procedures reasonably 

designed to ensure and monitor compliance with the BSA and 31 

CFR Part 103. Banks are expected to have a written BSA 

compliance program with at a minimum, a system of internal 

controls to ensure compliance, testing for compliance, coordination 

and monitoring of day-to-day compliance and personnel training.

OCC BSA Examinations

Generally compliance examiners, who are specifically trained in the 

BSA, reviewed and evaluated bank wide controls including those 

 

4 Title 31 USC Sections 5311-5330 and 12 USC Sections 1818(s), 1829(b), and 1951-1959.
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 10

covering private banking, while trust examiners reviewed specific 

trust accounts for compliance and unusual activity. Depending on 

asset size, and other factors such as a risk assessment of each 

bank, BSA examinations are generally completed every 12 to 36 

months. 

 

OCC examiners conduct BSA examinations of trust and private 

banking units based on procedures in 3 handbooks: Community 

Bank Consumer Compliance (updated November 2000), Bank 

Secrecy Act (updated September 2000), and the Community Bank 

Fiduciary Activities Supervision handbook (dated September 1998).

During our review separate exams were not required at banks 

offering trust and private banking services, although it’s likely that 

trust exams were performed at a different time than the 

commercial BSA exam and by different examiners.

During our review period, BSA examinations for banks with total 

commercial assets over $1 billion primarily focused on a bank’s 

internal controls over its bank-wide operations. Also included are 

optional tests of bank transactions such as testing whether BSA 

reporting forms were fully and accurately completed. Community 

bank examination procedures can be used for banks with 

commercial assets up to $1 billion. These examinations rely 

heavily on transactional testing to assess BSA compliance. 

 

 

Findings and Recommendations

Finding 1 Trust and Private Banking Services Were Not 

Always Covered In A BSA Examination

We could find no evidence that trust and private banking services 

were being covered as a part of a bank’s BSA examination for 

some of the 34 sampled banks. OCC BSA examination guidelines 

require examiners to cover “specialty areas” such as trust and 

private banking services in all BSA large bank examinations. 

However, no such requirement exists in the community bank 

handbook because of the banks smaller size and they may not have 

specialty areas.
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 11

No Evidence of Trust BSA Examination Coverage At Some Banks

To determine whether there had been BSA examination coverage 

of either trust or private banking services, we reviewed the latest 

trust and compliance examinations completed at our sample of 34 

banks. We looked for instances where BSA examination 

documentation indicated trust and/or private banking services were 

covered during the bank’s BSA examination process. Where 

examination work was not clearly documented, we asked 

responsible examiners about the extent of such work completed in 

either area.

We found no evidence of BSA examination coverage of trust 

services at six (17.6%) of the 34 sampled banks. Based on 

various factors reflecting BSA compliance risk, we considered 4 of 

the 6 to be of moderate risk and 2 low risk. (See appendix 2 for 

our risk assessment ratings). The trust assets managed by these 6 

banks ranged from about $660 million to over $30 billion. 

Table 1 below shows a breakout across three asset size categories 

of the sampled banks. 

Table 1

Evidence of Trust Examination Coverage

Sampled Banks Asset Size 

Trust Banks in

Sample

No Evidence of 

Trust Coverage

Over $1 Billion

In Trust Assets 24 5 (20.8 %)

$250 Million to $1 Billion

In Trust Assets 9 1 (11.1%)

Under $250 Million In

Trust Assets 1

 

0 (0.0%)

Totals 34 6 (17.6%)

Source: OIG Analysis of OCC examination records

Table 1 identifies the number of banks based on trust assets 

because this review focused on BSA coverage of trust services. 

Prior OIG BSA audits identified banks based on commercial assets. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 12

The applicable OCC guidance for BSA trust examinations during our 

review period was the BSA handbook (dated September 1996) and 

the Community Bank Consumer Compliance handbook (dated 

August 1995). In OCC BSA examinations, the use of one 

handbook or the other is generally dependent on the amount of 

commercial assets rather than trust assets managed by a bank. 

The number of banks in our sample based on commercial assets 

included 12 banks over $1 billion, 11 between $250 million to $1 

billion and 11 banks under $250 million. 

For banks with over $1 billion in commercial assets, OCC policy 

stipulates that examiners are to use procedures from the BSA 

handbook. These procedures are commonly called the large bank 

procedures. For banks with total assets of less than $250 million 

with no regional or multinational affiliation examiners are required 

to use the Community Bank handbook. For banks with commercial 

assets between $250 million to $1 billion the examiners can use 

either handbook depending on the bank’s structure and examiner 

judgment. 

 

According to the BSA large bank handbook, the examination scope 

requires examiners performing BSA examinations to ensure 

coverage for all banking units of the bank being examined. This 

includes specialty areas such as trust, private banking, 

correspondent banking, currency operations, credit card, 

international and discount brokerage. The Community Bank 

handbook does not specifically require examination coverage of 

trust services even though there is the potential money laundering 

risk associated with trust services.

 

Aside from the BSA handbooks, we identified other factors 

suggesting that BSA examination coverage was warranted. 

• One bank with a moderate risk of money laundering had not 

received BSA trust coverage in either of its 2 most recent trust 

examinations. This covered a span of almost five years.

• The six banks with no evidence of trust coverage contained 

over $67 billion in trust assets. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 13

The absence of BSA examination coverage was similarly noted in 

two internal OCC quality assurance reviews in year 2000. The 

Central District’s community bank quality assurance program 

review found 8 (53 percent) of the reviewed examinations failed to 

contain any evidence that the bank BSA review included the trust 

department. The Southwestern District’s quality assurance review 

found 4 (40 percent) of the Asset Management (trust) 

examinations did not evaluate compliance with the BSA. The 

quality assurance report opined that this was a systemic 

deficiency. 

Private Banking Examination Coverage Also Lacking 

We also found the absence of BSA coverage for many of the 

banks' private banking activities. As shown in Table 2, we found 

this for 12 (60%) of the 20 banks offering private banking 

services.

Table 2

Evidence of Private Banking Examination Coverage

Sampled Banks

Sampled Banks

 With Private Banking

No Evidence

Of Private

 Banking Coverage

Over $1 Billion

In Commercial Assets*

14 7 (50%)

Under $1 Billion In

Commercial Assets*

 6 5 (83.3%) 

Totals 20 12 (60%)

* Commercial asset size includes regional or multinational affiliation

Source: OIG Analysis of OCC examination records

As with our review of trust services, we found this condition by 

reviewing the examination workpapers and interviewing responsible 

examiners. Appendix 3 summarizes the BSA coverage for private 

banking services for the sampled banks.

Weaknesses In Examination Process

Based on our review of examination workpapers, discussions with 

examiners, and a review of OCC's supervisory monitoring system, 

we believe that several factors contributed to the observed gaps in 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 14

BSA examination coverage of trust and private banking services. 

These included handbook guidance, which do not specifically 

require coverage of trust and private banking services, and OCC’s 

supervisory monitoring system's limited informational capacity to 

monitor BSA examination coverage. 

OCC handbook guidance does not specifically require detailed BSA 

examination procedures be applied to either specialty area. For 

example, the large bank handbook only requires that examiners 

review bank wide policies that address all business units. It does 

not require examiners to specifically cover trust or private banking 

and does not require mandatory transactional testing in these 

areas. The Community Bank handbook examination requirements 

do not require examiners to cover specialty areas because the 

banks are smaller and less likely to offer trust and private banking 

services. 

Given the widely acknowledged risk of money laundering with 

regard to trust and private banking services, we believe OCC could 

enhance its supervision of bank BSA compliance for both services 

by covering these areas in the banks’ risk analysis. Examination 

coverage in these areas should be mandatory unless the examiner’s 

risk assessment documents why coverage is not warranted. As 

we were told by some OCC officials, BSA compliance risks are 

affected by various factors such as the effectiveness of internal 

and/or external audits, the nature and extent of trust and private 

banking services provided, and the presence of bank BSA policies 

and procedures. Expanded clarification on how these various 

factors are to be assessed and documented could provide not only 

examiner flexibility but also BSA coverage. 

We also inquired about OCC’s examination monitoring system to 

determine how supervisors and/or managers monitor BSA 

examinations to ensure sufficient coverage, and whether they were 

aware of the lack of BSA coverage we found. We found that 

another contributing factor to the gap in BSA examination coverage 

may be the informational limitations of OCC's examination 

monitoring system. 

For supervision and monitoring purposes, the results of BSA 

examinations are recorded into OCC’s Supervisory Monitoring 

System (SMS). This is an automated system used to record and 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 15

communicate narrative and statistical information on institutions of 

supervisory interest. During our review, SMS was the primary 

monitoring system that OCC management used to track 

examinations. However, in March 2001, OCC initiated a new 

monitoring system called Examiner View. 

The new monitoring system is an integrated system used by most 

examiners to plan and record the results of supervisory activities, 

including workpaper documentation. OCC personnel told us 

Examiner View can query information at all but the largest banks 

that OCC supervises. Unlike Examiner View, the older SMS is 

unable to query and track specialty areas of BSA examinations. If 

managers wanted to follow up on work completed in trust or 

private banking they would need to read the narrative for the entire 

compliance examination and then possibly call the examiner who 

completed the work to identify what was specifically completed. 

SMS also does not have the capability to automatically search 

examination records and generate reports to management alerting 

them that required BSA coverage was lacking. We believe these 

SMS system limitations did not allow managers to readily oversee 

or monitor BSA examinations to ensure required trust and private 

banking services were covered and examination procedures were 

fully implemented. However, the new Examiner View monitoring 

system should be more effective given its ability to query and track 

all specialty areas of most BSA examinations. 

OCC officials do not believe that mandatory examination coverage 

for trust and private banking services is needed in all BSA 

examinations. However, they agreed these services should be 

reviewed and included in the bank risk analysis. The officials also 

believe that the frequency of examination coverage for trust and 

private banking should depend on the level of risk relative to BSA 

compliance and money laundering. 

 

Recommendations

1. The Comptroller of the Currency should establish mandatory 

BSA examination coverage for trust and private banking 

services in all BSA examinations in the absence of a 

documented risk assessment to the contrary.
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 16

OCC Management Comment

OCC concurred that in some cases, their examination teams 

could have expanded the scope of BSA examinations to include 

trust and private banking services. To address future 

examination coverage of trust and private banking services, 

OCC emphasized they would hold ongoing discussions with the 

examination staff on the need to perform and document risk 

assessments for each institution. OCC also plans to place a 

notice on their internal website to communicate to examiners 

the results and concerns of this audit. 

2. The Comptroller of the Currency needs to improve the 

examination monitoring process used by management to ensure 

adequate oversight of BSA examinations covering trust and 

private banking services.

OCC Management Comment

OCC concurred and stated they would communicate to 

managers the need to periodically monitor and identify, through 

Examiner View, examinations where examination procedures 

were performed on high-risk areas such as private banking and 

trust. OCC also stated that internal targeted quality assurance 

reviews of private banking and trust services would be 

conducted in 2002. 

OIG Comment

We believe the management actions planned by OCC, if 

properly implemented, address the intent and conditions of 

recommendations 1 & 2. Furthermore, OCC plans to take the 

corrective actions within 90 days after issuance of this report. 

Finding 2 Trust BSA Examinations Did Not Always Comply With

OCC Examination Policy 

When BSA examinations covered trust services, examiners did not 

always follow OCC’s applicable BSA handbook guidelines. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 17

Examiners did not always use the appropriate set of examination 

procedures or the complete set of procedures. 

Trust Examinations Were Not Always Complete 

OCC’s BSA examinations covered trust services at 28 of the 34 

sampled banks. We found that the examination files generally 

identified and documented the work completed in an 

understandable manner and we were able to evaluate the actual 

work performed. But we found that in 9 (32.1%) instances the 

examination was incomplete because either none or only some of 

the mandatory procedures had been completed. During our review, 

OCC’s BSA handbooks required 12 mandatory procedures for the 

large banks and 18 mandatory procedures for the community 

banks.

Table 3 shows the nature and extent of incomplete trust 

examinations.

Table 3

Nature of Incomplete Trust Examinations

Banks 

Receiving BSA 

Trust Exams

None of the 

Mandatory 

Procedures 

Were 

Completed

Mandatory 

Procedures 

Were Only 

Partially 

Completed

Examinations 

Properly 

Following

OCC Guidelines

Totals 28

 

2 (7.1%) 7 (25%) 19 (67.8%)

 Source: OIG Analysis of OCC examination records.

Similar findings were identified in an OCC Community Bank quality 

assurance follow-up review for the Western District in March 

2000. The quality assurance review found that 6 of 16 (37.5%) 

examinations did not utilize the 12 mandatory steps for large bank 

examinations. The quality assurance review states in part that 

“confusion exists among examiners as to what is required to be 

performed for BSA”. 

Contrary to OCC policy, examination workpapers usually did not 

adequately document why applicable large or community bank 

examination procedures were not completed. We asked OCC 

examiners to explain the omission of any required handbook 

procedures. Examiners cited various reasons such as: (1) the 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 18

examiner did not believe the step was mandatory in all 

examinations, (2) the examiner-in-charge waived the step, (3) the 

procedures were completed in earlier examinations with no 

identified problems, and (4) the BSA large bank procedures do not 

apply to banks having limited trust powers. When we inquired, one 

OCC policy official told us that these were not valid explanations 

for not documenting why a required BSA examination procedure 

was not performed.

Examination Guidance Needs Clarification 

In reviewing the BSA examinations, we found that examiners did 

not always use the correct BSA handbook in completing the 

examinations. The Community Bank handbook with 18 mandatory 

procedures can be used for banks with assets up to $1 billion and 

must be used for banks with total assets under $250 million with 

no regional or multinational affiliation. For banks over $1 billion, 

examiners are to use the large bank handbook with 12 mandatory 

procedures. 

The Community Bank handbook does not specifically define what is 

to be included in determining asset size. The large bank handbook 

does not mention asset size. Neither handbook specifies whether 

the term bank assets is to be applied based on the bank’s 

commercial assets, the trust department’s managed or held assets, 

or some combination of these, or whether off-balance sheet assets 

are included. Another handbook offering guidance on handbook 

selection is the Overview handbook. However, even this handbook 

does not give the examiner a definition of which type of asset to 

use. We found that examiners had interpreted the asset size 

guidance differently.

For example, in one case the trust and compliance examiners used 

different handbooks. The compliance examiners followed the 

community bank procedures because the commercial assets were 

under $250 million and the trust examiners used the large bank 

procedures because the trust assets were over $1 billion. In 

another examination, we found that the trust examiners used 

community bank procedures though the bank was affiliated with 

other banks having commercial assets over $1 billion. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 19

Incomplete BSA Examinations Previously Reported By OIG

In a prior January 2000 OIG audit report5 we noted that OCC had 

not performed a complete BSA examination for 38 of the 82 

examinations we reviewed. Those examinations generally occurred 

in 1996 and 1997 and were based on bank wide BSA 

examinations, not specifically trust and private banking. 

Our current audit of trust and private banking services suggest that 

OCC has not fully implemented corrective action regarding 

incomplete BSA examinations and this has become a lingering 

weakness. In responding to our prior audit, OCC agreed to (1) 

emphasize, through ongoing discussions with the examining staff, 

the need to perform all of the required examination procedures and 

(2) monitor examiner compliance through their quality assurance 

program beginning in 2000. 

Recent OCC quality assurance reviews have identified improving 

conditions relating to BSA examinations. However, corrective 

actions are still needed to ensure that BSA examiners follow and 

complete all applicable mandatory examination handbook 

procedures. 

Recommendations

3. The Comptroller of the Currency needs to ensure that all 

required BSA examination procedures are completed when 

covering trust and private banking services. If examiners 

determine that a required procedure is not needed, the work 

papers should be annotated documenting the exceptions 

consistent with OCC's working paper policies.

OCC Management Comment

OCC concurred and stated they would communicate to 

examiners the need to perform all required examination 

procedures, as well as the results and concerns raised in this 

report. 

 

5 Office of the Comptroller of the Currency Bank Secrecy Act Examinations Did Not Always Meet 

Requirements, OIG 00-027, January 3, 2000. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 20

OIG Comment

Our audit found that OCC had previously communicated to 

examiners the need to perform all required examination 

procedures and that this communication was not always 

followed. However in their response to this report, OCC also 

agreed to increase oversight and monitoring by managers 

through Examiner View. We believe that along with the 

implementation of Examiner View, OCC’s planned corrective 

actions address the recommendation and underlying conditions. 

4. To better ensure that examiners use the correct examination 

handbook, the Comptroller of the Currency should clarify 

examination guidance as to what is to be specifically included in 

determining total assets. In addition, consideration should be 

given to covering this clarifying language in any associated BSA 

examination training. 

OCC Management Comments

OCC concurred and stated they would communicate to 

examiners the definition of total assets and provide guidance on 

using the appropriate examination procedures for community 

and large banks. OCC also stated they planned to expand the 

training modules for BSA to provide guidance on using the 

appropriate examination procedures for community and large 

banks. 

OIG Comment

We believe OCC’s planned corrective actions adequately 

address the recommendation. 

Finding 3 Certain High-Risk BSA Areas Are Seldom Tested 

Examiners did not always test certain high-risk transactions 

commonly associated with money laundering or evaluate available 

BSA reports that banks are required to file. These high-risk areas 

were foreign correspondent banking and wire transfers; the reports 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 21

were the currency transaction reports and suspicious activity 

reports. 

Testing these high-risk areas could provide a more reliable 

assessment of a bank’s BSA controls and could disclose situations 

that indicate potential money laundering. Testing normally involves 

reviewing a sample of trust or private banking customer 

transactions. OCC’s prior BSA handbooks did not require 

transactional testing for trust or private banking services regardless 

of bank size or risk. In our sample, we believe that over 80 

percent of the banks reviewed were moderate to low risk. 

Fourteen of the banks in our sample maintained correspondent 

accounts with foreign banks to facilitate the transfer of customer 

funds between countries. Foreign correspondent accounts may 

face increased risk for money laundering due to the activities and 

services they provide, particularly if they are located in a secrecy 

haven. 

 

Money launderers may use wire transfers to quickly move funds 

through multiple accounts and banks making it difficult to trace 

their origin. Criminals can also use wires to move money out of 

the country through a bank account in a country where laws are 

designed to facilitate secrecy. 

Large currency transactions are also subject to special bank 

reporting as a means for law enforcement to detect potential 

money laundering. Examiners can also review the Currency 

Transaction Reports (CTR) as a means of detecting potential money 

laundering and test bank compliance with the reporting 

requirement. 

Similarly, banks are required to file Suspicious Activity Reports 

(SAR) for any suspicious transaction relating to a possible violation 

of law, including money laundering. As with CTRs, SARs also 

provide law enforcement an audit trail for investigative purposes. 

Table 4 below shows the frequency these high-risk areas were 

tested and/or available reports were evaluated for our sampled 

banks. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 22

Table 4

Testing of High Risk Transactions

Transactions Applicable to

Business Unit

Banks Offering 

Service

Instances 

Where 

Transaction

s Tested

Rate Of 

Coverage 

as a 

Percent

Trust Services (28 banks)

Foreign Correspondent Banking 12 1 8.3 %

Wire Transfers 26 13 50 %

Large Cash Transactions 21 7 33 %

Suspicious Activity Reports 28 3 10.7 %

Private Banking Services (8 banks)

Foreign Correspondent Banking 7 0 0 %

Wire Transfers 8 4 50 %

Large Cash Transactions 8 3 37.5 %

Suspicious Activity Reports 8 2 25 %

Source: OIG Analysis of OCC examination records

Table 4 excludes the 6 banks where there was no BSA examination 

coverage of trust services, as well as the 12 banks where the BSA 

examination did not cover private banking. 

We believe that transactional testing in high-risk areas is a reliable 

means of assessing BSA program compliance. Transactional 

testing in these areas also provides examiners some assurance that 

bank wide internal controls are working as intended. 

OCC officials at the exit conference agreed that testing of high-risk 

areas is important in BSA examinations. However, they believe 

that mandatory transactional testing for the noted high-risk areas is 

not necessary in all situations. OCC officials also noted that the 

new BSA handbooks contain examination procedures that include a 

review of CTRs, SARs, and foreign correspondence accounts in 

high-risk banks in order to draw a sample for testing compliance. 

The sample size of the high-risk areas is to be based on the overall 

risk profile of the bank. 

Recommendation

5. The Comptroller of the Currency should ensure that examiners 

complete transactional testing of high-risk BSA areas in trust 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 23

and private banking unless the documented bank risk 

assessment deems it unnecessary.

OCC Management Comments 

OCC concurred and stated they would convey to examination 

staff the need to perform transactional testing procedures, using 

the recently issued BSA/AML examination procedures, on areas 

identified in the risk assessment as high-risk. 

OIG Comment

We believe OCC’s planned corrective actions will address the 

recommendation and underlying conditions if properly 

implemented. 

Finding 4 Opportunities To Improve BSA Handbook Guidance 

In late 2000, OCC revised its BSA examination handbook 

procedures for both large and community banks. We reviewed the 

new handbooks to see whether the new procedures would address 

the examination weaknesses we noted in this audit. We identified 

2 areas where there appears to be an opportunity to further 

enhance the BSA examination handbooks. 

First, the new BSA handbook now has over 45 mandatory 

procedures while the new Community Bank handbook has over 30 

mandatory BSA procedures. We believe these mandatory 

procedures may not always be warranted because the risk of BSA 

compliance and a given bank’s exposure to money laundering 

varies across banks. For example, the type of bank internal 

controls likely vary from very elaborate sophisticated systems to 

minimal published policies that might be reviewed based on 

available staffing. Examination efficiencies may accrue by 

affording examiners greater discretion in applying the mandatory 

procedures to the specific risk of a given bank. 

Second, the Community Bank handbook recommends a sample size 

of only 5 accounts or transactions for testing purposes. We 

believe this number may be too small to provide a reliable basis for 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 24

an examiner’s conclusions. We believe that OCC examiners could 

improve transactional testing effectiveness by basing the sample 

size selection on the bank’s risk profile similar to that used in 

OCC’s large bank handbook. The primary advantage is that the 

large bank handbook links the sample size to risk and not an 

arbitrary number. Furthermore, the large bank handbook sampling 

provides sufficient flexibility to use a small sample size should 

conditions and risk warrant a smaller sample. 

 

OCC officials at the exit conference stated they believed this 

finding was somewhat inconsistent in that findings 1 through 3 

identify lack of examination effort while this finding suggests OCC 

may be expending too much effort. We believe this inconsistency 

is one of context. Our prior observations took into account the risk 

of each sampled bank. The purpose of our report 

recommendations is to ensure coverage for trust and private 

banking services unless the documented risk assessment deems it 

unnecessary. Furthermore OCC’s strategic plan calls for using risk 

focused examination resources based on need and risk while the 

new BSA handbooks mandate the same minimum coverage for 

every bank regardless of need and risk. 

OCC officials also stated they realize the new number of 

mandatory BSA procedures is higher than those in the older 

handbooks but reasonable because the procedures cover many 

basic preliminary steps. The officials noted a review could be 

conducted to consider scaling back the procedures should it 

become apparent that the increased numbers of mandatory 

procedures were burdensome or impractical. 

Further, OCC officials believed the recommended sample size of 5 

for transactional testing in the Community Bank handbook is 

reasonable because community banks are usually small, have fewer 

transactions than large banks and offer fewer services to their 

customers. 

Recommendations

6. The Comptroller of the Currency should reassess whether 

making the new examination procedures optional rather than 

mandatory would provide examiners greater flexibility in aligning 

examination procedures with the bank’s BSA compliance risk. 
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 25

This would not be contrary to OCC’s Strategic Plan calling for 

risk focused examination procedures. Furthermore, if the 

procedures are made optional, OCC must ensure that the basis 

for not completing an examination procedure is adequately 

annotated in the working papers in line with OCC’s working 

paper documentation policies. 

OCC Management Comments

OCC concurred and stated during 2002, they will reevaluate the 

effectiveness of the new procedures and revise the procedures 

as warranted. During this review, they will also consider a 

number of factors, including feedback from the examination 

staff, examination results, review findings, and examination 

efficiency measures. 

7. The Comptroller of the Currency should reassess whether the 

large bank sampling methodology for BSA transactional testing 

should be used for community banks to replace the current 

arbitrary sample size of 5 currently used. The large bank 

sampling approach should provide sufficient sampling flexibility 

for smaller samples given the focus on risk. 

OCC Management Comments

OCC concurred and stated they will closely evaluate appropriate 

changes to the community bank examination approach, 

including sampling methods, in the context of risk-based 

supervision. 

OIG Comment

We believe that OCC’s planned corrective actions address the 

intent of recommendations 6 & 7. It should also be noted that 

OCC’s planned internal targeted quality assurance reviews of 

both private banking and trust for 2002 should provide added 

insights from which to further assess the OIG’s 

recommendations. 

* * * * * *
OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 26

We would like to extend our appreciation to OCC for the cooperation 

and courtesies extended to our staff during the audit. If you have any 

questions, please contact me at (415) 977-8810 ext. 222 or John A. 

Richards, Audit Manager, at (415) 977-8810 ext. 225. Major 

contributors to the report are listed in Appendix 5. 

/S/

Benny W. Lee

Regional Inspector General for Audit
Appendix 1

Objectives, Scope, and Methodology 

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 27

The objective of the audit was to evaluate OCC’s BSA examination coverage over 

trust and private banking services. Specifically, we sought to determine if BSA 

examination procedures were adequate to ensure that national banks had sufficient 

controls and procedures to comply with the BSA, and prevent and detect money 

laundering through trust and private banking activities. We also sought to determine if 

examiners were complying with OCC examination guidelines and if additional 

examination procedures or supervision were needed. 

We visited OCC Headquarters in Washington, D.C., and 7 OCC district or field offices 

located in Charlotte, North Carolina, Dallas, Texas, Glendale and San Francisco, 

California, Miami, Florida, New York City, New York, and Pittsburgh, Pennsylvania. At 

OCC headquarters, we obtained BSA guidance provided to field examiners, including 

specific examination procedures to be used in conducting all BSA examinations. At 

each field location visited, we reviewed and discussed bank examination strategies 

and BSA policies and procedures with managers and examiners. 

Additionally, we reviewed a judgmentally selected sample of 34 recent BSA 

examinations completed on national banks holding trust charters. Our sample included 

5 banks that were supervised by OCC’s large bank supervision group, 7 other banks 

with commercial assets over $1 billion and 22 banks with commercial assets under $1 

billion. Twenty of the 34 banks in our sample offered private banking services. The 

examinations we reviewed were completed between March 1996 and June 2000. 

OCC Headquarters personnel in the compliance and policy groups helped us to identify 

banks that would be generally representative of banks with trust powers. 

Accordingly, most banks selected offered a wide range of trust services, such as 

estate planning and administration, retirement accounts, and investment services. 

Further, many of the 34 banks were located in High Intensity Drug Trafficking Areas 

(HIDTA) as designated by the Office of National Drug Control Policy. 

The 34 banks with trust charters had assets ranging from about $124.7 million to 

$694.6 billion. These banks held a total of over $2 trillion in trust assets. OCC does 

not issue a separate charter to those banks offering private banking and therefore was 

unable to provide us the number of banks offering private banking services or the 

estimated asset size of private banking accounts. 
Appendix 1

Objectives, Scope, and Methodology 

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 28

Our sample also contained two of the twenty banks surveyed for correspondent 

banking by the Minority Members of the Permanent Subcommittee on Investigations6. 

With many of the sampled banks located in HIDTA areas we expected each trust 

examination to have full compliance with OCC BSA guidelines and complete minimal 

trust BSA work at each bank regardless of risk. Further, as the bank risk increased for 

potential money laundering activities we looked to see if the number of BSA 

examination procedures and work performed increased proportionately.

To help us assess the adequacy of BSA examinations, we developed a risk profile of 

each bank in our sample. We used the profiles to evaluate institutional risk including 

the risk of the bank violating BSA regulations, or the bank’s clients using their trust or 

private banking accounts to launder money. Factors we considered in developing the 

risk profile included:

• the products and services offered to trust and private banking customers; 

• the typical trust or private banking client having an account with the institution; 

• the number of clients who were non-resident aliens, especially those residing in 

bank secrecy havens, or countries known to be heavily involved in drug trafficking; 

• whether trust or private banking accounts included high risk business entities, such 

as check cashing or currency exchange facilities;

• whether the bank had off-shore accounts, foreign branches, and foreign 

correspondent banking relationships (especially with banks located in bank secrecy 

havens, or countries known to be heavily involved in drug trafficking); 

• identifying the level of cash transactions processed by the bank; and

• Identifying the bank’s procedures for controlling and monitoring transactions 

initiated by trust administrators and private bankers.

We obtained information for the risk profiles from OCC’s Supervisory Monitoring 

System printouts, BSA examination workpaper files, interviews with OCC examinersin-charge and portfolio managers and background information from the bank’s web 

site. Further, we primarily ranked the institutions as high, moderate or low risk 

according to the type of services and products offered, type of clientele served and 

locations of business operations worldwide. We identified and evaluated OCC’s 

 

6 Correspondent Banking: A Gateway For Money Laundering, S.Prt. 107-1 February 5, 2001, Minority 

Staff Report.
Appendix 1

Objectives, Scope, and Methodology 

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 29

examination procedures based on our bank profile and activities that pose the highest 

risk for money laundering. 

Finally, we also reviewed OCC’s Policies and Procedures Manual 5400-8, dated 

February 4, 1997 to identify minimum examiner documentation standards. Our review 

evaluated all OCC examination work contained in workpaper files that directly focused 

on trust and private banking services. Our opinions are based on documentation found 

in the examination workpaper files and through discussions held with knowledgeable 

OCC examiners for each institution reviewed. 

We conducted our fieldwork between July 2000 and June 2001 in accordance with 

generally accepted government auditing standards. 
Appendix 2

Summary Of Trust Examination Coverage

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 30

Sample

Bank

No.

OIG

Assigned

BSA Risk Rating

Did 

Examiners

Apply 

Correct 

Handbook 

Procedures?

Extent

Mandatory 

BSA 

Procedures 

Completed

Evidence of

Trust Coverage?

01 HIGH YES ALL YES

02 LOW NO NONE NO

03 LOW NO NONE NO

04 HIGH YES ALL YES

05 MODERATE YES SOME YES

06 MODERATE YES ALL NO

07 MODERATE YES ALL YES

08 LOW YES ALL YES

09 MODERATE YES SOME YES

10 MODERATE NO NONE NO

11 MODERATE YES SOME YES

12 MODERATE YES ALL YES

13 LOW NO NONE YES

14 LOW YES ALL YES

15 HIGH YES ALL YES

16 HIGH YES ALL YES

17 MODERATE YES ALL YES

18 MODERATE YES ALL YES

19 LOW YES ALL YES

20 MODERATE YES ALL YES

21 MODERATE YES ALL YES

22 MODERATE YES ALL YES

23 MODERATE YES SOME NO

24 MODERATE NO NONE YES

25 MODERATE YES ALL YES

26 MODERATE YES SOME YES

27 MODERATE YES ALL NO

28 MODERATE YES SOME YES

29 LOW YES ALL YES

30 MODERATE YES ALL YES

31 MODERATE YES SOME YES

32 MODERATE YES ALL YES

33 HIGH YES ALL YES

34 HIGH YES SOME YES

21 All

29 YES 8 some 28 YES

5 NO 5 None 6 NO
Appendix 3

Summary Of Private Banking Examination Coverage

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 31

Sample

Bank

No.

OCC

District

Bank Offers 

Private

Banking Services

Size of Bank

Based On 

Commercial 

Assets*

Evidence of Private

Banking Coverage 

01 NE YES LARGE YES

02 NE N/A

03 NE YES COMM./LARGE NO

04 NE YES COMM./LARGE YES

05 NE N/A

06 NE N/A

07 NE N/A

08 W N/A

09 W YES LARGE NO

10 W YES LARGE NO

11 W YES LARGE YES

12 W YES LARGE NO

13 W N/A

14 W N/A

15 W YES COMM./LARGE NO

16 SE YES LARGE YES

17 SE YES LARGE YES

18 SE YES LARGE NO

19 SE N/A

20 SE YES COMMUNITY NO

21 SE N/A

22 SE N/A

23 SE YES LARGE NO

24 SE YES COMMUNITY NO

25 SW YES LARGE YES

26 SW N/A

27 SW YES LARGE NO

28 SW YES LARGE NO

29 SW N/A

30 SW N/A

31 SW N/A

32 SW YES COMM./LARGE NO

33 SW YES LARGE YES

34 W YES LARGE YES

14 LARGE

2 COMMUNITY 8 YES

20 YES 4 COMM./LARGE 12 NO

 

*Large: over $1 billion, Comm./Large: from $250 million to $1 billion, Community: under $250 million.
Appendix 4

Management Comments

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 32
Appendix 4

Management Comments

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 33
Appendix 5

Major Contributors to this Report

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 34

Western Region

John A. Richards – Audit Manager

John E. Carnahan – Auditor-in-Charge

Jack S. Gilley – Auditor

Gale H. Dwyer – Auditor 
Appendix 6

Report Distribution

OCC BSA Examination Coverage of Trust and Private Banking Services (OIG-02-016) Page 35

The Department of the Treasury

Assistant Secretary, Office of Financial Institutions

Director, Office of Strategic Planning 

Director, Office of Accounting and Internal Control

Office of the Comptroller of the Currency

Comptroller

Senior Deputy Comptroller for Mid-size and Community Banks 

Chief National Bank Examiner

Senior Deputy Comptroller for Large Banks

Deputy Comptroller for Compliance Operations and Policy

Director, Enforcement and Compliance

Director, Management Improvement

Northeastern District Deputy Comptroller

Southeastern District Deputy Comptroller

Southwestern District Deputy Comptroller

Western District Deputy Comptroller

Senior Advisor (OIG/GAO Liaison)

Office of Management and Budget

OIG Budget Examiner