75–729

107TH CONGRESS REPT. 107–192 " ! HOUSE OF REPRESENTATIVES 1st Session Part 2

FINANCIAL SERVICES ANTIFRAUD NETWORK ACT OF 2001

OCTOBER 16, 2001.—Committed to the Committee of the Whole House on the State

of the Union and ordered to be printed

Mr. SENSENBRENNER, from the Committee on the Judiciary,

submitted the following

R E P O R T

together with

ADDITIONAL VIEWS

[To accompany H.R. 1408]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill

(H.R. 1408) to safeguard the public from fraud in the financial

services industry, to streamline and facilitate the antifraud information-sharing efforts of Federal and State regulators, and for

other purposes, having considered the same, reports favorably

thereon with an amendment and recommends that the bill as

amended do pass.

CONTENTS

Page

The Amendment ...................................................................................................... 2

Purpose and Summary ............................................................................................ 2

Background and Need for the Legislation ............................................................. 2

A. Background .................................................................................................... 2

B. The Coble Amendment .................................................................................. 3

C. The Rep. Smith and Rep. Bachus Agreement ............................................. 3

Hearings ................................................................................................................... 4

Committee Consideration ........................................................................................ 4

Vote of the Committee ............................................................................................. 4

Committee Oversight Findings ............................................................................... 4

Performance Goals and Objectives ......................................................................... 4

New Budget Authority and Tax Expenditures ...................................................... 4

Congressional Budget Office Cost Estimate .......................................................... 4

Constitutional Authority Statement ...................................................................... 8

Section-by-Section Analysis and Discussion .......................................................... 8

Changes in Existing Law Made by the Bill, as Reported ..................................... 11

2

1 Jerry Seper, Patrice Hill, FBI Expands Terrorist Hunt Into U.S. Banks, Wash. Times, Sept.

19, 2001, at A18. 2 Id.

Markup Transcript .................................................................................................. 11

Additional Views ...................................................................................................... 107

The amendment (stated in terms of a provision in the reported

bill filed by the Committee on Financial Services) is as follows:

In section 111(e)(2), strike subparagraph (A) and insert the following:

(A) DECLARATORY JUDGMENT.—If a party

seeks in any action or proceeding to compel disclosure of confidential supervisory information, a financial regulator may in a civil action for a declaratory judgment seek to prevent such disclosure.

PURPOSE AND SUMMARY

H.R. 1408, as reported by the Committee on the Judiciary, establishes a seamless national network for the sharing of critical and

confidential antifraud information among American financial services industries. This network is intended to preserve the careful

balance of privacy and confidentiality concerns with the need of our

financial services industries’ regulators and law enforcement agencies to access critical information.

BACKGROUND AND NEED FOR THE LEGISLATION

A. BACKGROUND

In recent weeks, threats of potential terrorist activity within the

United States have raised grave concern over America’s Homeland

Security. The need to better secure our financial services industries

is emphasized by the possibility that perpetrators of terrorist acts

on September 11, 2001, may have utilized American financial markets to hedge enormous profits from their horrific acts.1 Furthermore, a financial investigation is reportedly a key element of the

ongoing investigation into the September 11, 2001 attacks.2 Enhancing the ability of financial services industries’ regulators to

better evaluate those to be licensed to serve in our financial services industries will help America fortify its first line of defense and

prevent abuses of our financial services industries.

Currently, there are over 250 Federal and State financial regulators and self-regulating financial organizations, each using different systems without a coordinated interface to share information

and keep track of each other’s antifraud efforts. Most regulators

have already computerized their records and have been working on

efforts to coordinate their databases internally. Recently, some of

the larger regulators have begun developing individual information-sharing agreements with other regulators across the financial

industry. There are, however, no comprehensive cross-industry coordination efforts underway, and there are no comprehensive

guidelines for safeguards to protect the confidentiality, privacy, and

security of shared information. Effectuating individual coordination

among all of the more than 250 financial regulators would require

3

tens of thousands of separate agreements—something that would

be neither efficient nor effective for protecting consumers.

B. THE COBLE AMENDMENT

At the markup, Mr. Coble, Chairman of the Committee on the

Judiciary Subcommittee on Courts, the Internet, and Intellectual

Property, offered an amendment to subsection 111(e)(2)(A) of H.R.

1408. In general, section 111 clarifies that ‘‘confidential supervisory

information’’ (CSI) prepared by financial regulators is privileged

from disclosure. As a result, the regulator collecting the CSI is its

owner and its contents may not be disclosed by a third party absent the regulator’s consent. While H.R. 1408 provides rules for the

appropriate disclosure of CSI, section 111(e)(2)(A) permits regulators to remove any dispute over the disclosure of CSI to Federal

District Court.

Although Mr. Coble explained that he was not opposed to the

Federal Courts reviewing disputes over CSI disclosure, Mr. Coble

explained two primary objections to the drafting of section

111(e)(2)(A):

1. As drafted, section 111(e)(2)(A) would apply to a wide variety of proceedings in state court, including criminal prosecutions, civil fraud suits, and proceedings instituted by state

regulators. In such proceedings, a third party might well assert that the CSI in question was relevant to a claim, even

a constitutional defense.

2. The language of section 111(e)(2)(A) would encourage unnecessary satellite litigation over what part of a given case

would be brought into Federal court and what part would

remain in a state tribunal.

The Coble amendment substitutes new language in subparagraph 111(e)(2)(A), authorizing an action for declaratory judgement. The action for declaratory judgement creates a means by

which rights and obligations may be adjudicated in cases involving

an actual controversy that has not reached the stage at which either party may seek a coercive remedy, or in which the party entitled to such a remedy fails to pursue. The classic example is a Federal declaratory judgement action to resolve coverage issues in an

automobile accident while the state court resolves questions of liability.

Under the Coble amendment, a regulator in a state action may

request that a Federal District Court issue a declaratory judgement

as to whether the regulator must surrender its CSI to a third

party. It is simply a cleaner way to accomplish the same purpose

of section 111(e)(2).

C. THE REPRESENTATIVE SMITH AND

REPRESENTATIVE BACHUS AGREEMENT

During the markup, Mr. Smith, Chairman of the Committee on

the Judiciary Subcommittee on Crime, voiced opposition to H.R.

1408. Mr. Smith noted that while H.R. 1408 would enhance information sharing between financial regulators, other provisions in

H.R. 1408 would limit the ability of law enforcement to receive and

share the same information. In addition, Mr. Smith pointed out

that section 111(b) of H.R. 1408 created an exception for duly auVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00003 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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thorized Committees of the Congress, the Government Accounting

Office, and financial regulators to access privileged information

under section 111(b) but provided no exception for law enforcement.

During markup, Mr. Smith pointed out that information currently

accessible to law enforcement would become privileged and

unaccessible under H.R. 1408. Mr. Smith explained that his concerns are shared by the United States Department of Justice.

Mr. Smith engaged Mr. Bachus in a colloquy to discuss the possibility of drafting an amendment for the floor that would address

Mr. Smith’s concerns. Mr. Bachus agreed to work with Mr. Smith,

Members on both sides of the aisle, so that an amendment may be

offered on the House floor.

HEARINGS

No hearings were held on H.R. 1408.

COMMITTEE CONSIDERATION

On Wednesday, October 10, 2001, the Committee met in open

session and ordered favorably reported the bill H.R. 1408, with

amendment, by voice vote, a quorum being present.

VOTE OF THE COMMITTEE

During the Committee’s consideration of H.R. 1408, it took no

rollcall votes. The Coble amendment passed by a voice vote and the

Chairman Sensenbrenner motion to order the bill reported favorably with an amendment passed by a voice vote.

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives, the Committee reports that the findings

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

PERFORMANCE GOALS AND OBJECTIVES

H.R. 1408 does not authorize funding. Therefore, clause 3(c) of

rule XIII of the Rules of the House of Representatives is inapplicable.

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of House rule XIII is inapplicable because this legislation does not provide new budgetary authority or increased tax

expenditures.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, the Committee sets forth, with respect to

the bill, H.R. 1408, the following estimate and comparison prepared

by the Director of the Congressional Budget Office under section

402 of the Congressional Budget Act of 1974:

5

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, October 12, 2001.

Hon. F. JAMES SENSENBRENNER, Jr., Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1408, the Financial Services Antifraud Network Act of 2001.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contacts are Mark Hadley and Ken

Johnson (for Federal costs), who can be reached at 226–2860,

Susan Sieg Tompkins (for the State and local impact), who can be

reached at 225–3220, and Paige Piper/Bach (for the private-sector

impact), who can be reached at 226–2940.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable John Conyers, Jr.

Ranking Member

H.R. 1408—Financial Services Antifraud Network Act of 2001.

SUMMARY

CBO estimates that enacting H.R. 1408 would have no significant impact on the budget. Enacting the legislation could affect direct spending and receipts, so pay-as-go procedures would apply;

however, we estimate that any such impacts would not be significant. H.R. 1408 contains intergovernmental and private-sector

mandates as defined in the Unfunded Mandates Reform Act

(UMRA), but CBO estimates that the costs would not be significant

and would not exceed the thresholds established in that act ($56

million for intergovernmental mandates and $113 million for private-sector mandates in 2001, adjusted annually for inflation).

H.R. 1408 would require financial regulators to coordinate their

computer systems to share information about fraud. The affected

regulators would include private regulatory organizations, the

Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency

(OCC), the Office of Thrift Supervision (OTS), the Securities and

Exchange Commission (SEC), and State regulators of the banking,

insurance, and securities industries.

The bill also would establish criminal penalties for regulators

who intentionally disclose confidential or privileged information to

the public. Finally, the bill would authorize these regulators to request the Federal Bureau of Investigation (FBI) to conduct criminal

background checks on individuals in the financial services industry,

and it would impose criminal penalties for the improper use of such

information.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

CBO estimates that coordinating computer systems among the

affected regulatory organizations would cost about $2 million over

6

the 2002–2003 period and insignificant amounts in subsequent

years. We estimate, however, that these costs would be largely offset by fees, and that the net effect on the budget would be negligible.

Those prosecuted and convicted under H.R. 1408 could be subject

to criminal fines; therefore, the Federal Government might collect

additional fines if the bill is enacted. Collections of such fines are

recorded in the budget as governmental receipts (revenues), which

are deposited in the Crime Victims Fund and spent in subsequent

years. CBO estimates that any impact of this legislation on collections of fines (and subsequent spending) would not be significant.

BASIS OF ESTIMATE

Federal financial regulators currently provide information about

enforcement and disciplinary actions via the Internet. Under the

bill, CBO expects that the financial regulators would create a

search engine to share information about fraud, and that the FDIC,

the NCUA, the OCC, or the OTS would bear the costs of this new

system. The NCUA, the OCC, and the OTS charge fees to cover all

their administrative costs; therefore, additional spending by those

agencies would have no significant net budgetary effect. That is not

the case with the FDIC, however. Because the balances in the deposit insurance funds exceed the levels required under current law,

deposit insurance premiums would not be affected by a small

amount of additional spending. Therefore, CBO expects that costs

incurred by the FDIC would not be recovered by raising insurance

premiums.

The Federal Reserve remits its profits to the Treasury, and those

payments are classified as governmental receipts in the Federal

budget. To the extent that the Federal Reserve bears the costs of

sharing information, H.R. 1408 would reduce receipts, but CBO estimates that any such impact would be negligible. If Federal financial regulators that receive annual appropriations, such as the

SEC, bear the costs of sharing information, H.R. 1408 could increase discretionary spending, subject to the availability of appropriated funds.

PAY-AS-YOU-GO CONSIDERATIONS

The Balanced Budget and Emergency Deficit Control Act sets up

pay-as-you-go procedures for legislation affecting direct spending or

receipts. Under the Balanced Budget and Emergency Deficit Control Act, legislation to provide funding necessary to meet the government’s deposit insurance commitment is excluded from pay-asyou-go procedures. CBO expects that the cost to the FDIC and

other financial regulators to establish a system to share information on fraud would be related to the safety and soundness of the

banking system, and thus would be excluded. Although H.R. 1408

would establish new criminal penalties, CBO estimates that any

impact of this legislation on the collection of criminal fines and

subsequent spending would not be significant.

INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

The bill would require State and private financial regulators to:

7

• Participate in a network that links databases containing information on final enforcement and disciplinary actions they

take. The bill does not require regulators to create new databases; rather, if such databases of public information exist,

those regulators must make the contents available to the

network.

• Provide notice to persons against whom enforcement or disciplinary action is taken based on information from the network. Such notice would include the identity of the network

participant who provided the information, a description of

the information received, and an opportunity to respond to

the information.

The requirement to make information available to the network

and to meet certain notice requirements would constitute both private-sector and intergovernmental mandates.

The bill also would preempt certain State disclosure laws that

would apply to the regulatory information released to the network,

to the extent that State laws provide less confidentiality or a weaker privilege than the bill provides. The bill also would require State

insurance regulators, when being audited by the General Accounting Office (GAO), to make all records available to GAO as part of

the audit. The preemption and new requirement would be intergovernmental mandates.

Based on information from governmental and industry sources,

CBO estimates that the costs of these mandates would not be significant, and would not exceed the thresholds established in

UMRA. Because the regulators would be required to provide information from databases that already exist, the costs to regulators

would be incurred only to bring those databases into compliance

with the network design. The notice requirements would expand

the procedures States already follow in their regulatory process

and would impose minimal costs.

The bill would place certain eligibility requirements on State insurance commissioners and State securities administrators in order

to access information from the network. These eligibility provisions

affect voluntary access to network information and therefore are

not mandates.

PREVIOUS CBO ESTIMATE

On July 17, 2001, CBO transmitted a cost estimate for H.R.

1408, as ordered reported by the House Committee on Financial

Services on June 27, 2001. The two versions of the bill are nearly

identical, and their budgetary effects are the same.

ESTIMATE PREPARED BY:

Federal Costs: Mark Hadley and Ken Johnson (226–2860)

Impact on State, Local, and Tribal Governments: Susan Sieg Tompkins (225–3220)

Impact on the Private Sector: Paige Piper/Bach (226–2940)

ESTIMATE APPROVED BY:

Robert A. Sunshine

Assistant Director for Budget Analysis

8

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the Committee finds that the Constitutional

Authority for this legislation in article 1, section 8, clause 1 (relating to the general welfare of the United States); article 1, section

8, clause 3 (relating to the power to regulate interstate commerce);

article 1, section 8, clause 5 (relating to the power to coin money

and regulate the value thereof); and article I, section 8, clause 18

(relating to making all laws necessary and proper for carrying into

execution powers vested by the Constitution in the government of

the United States).

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

The following section by section analysis describes H.R. 1408 as

reported by the Committee on the Judiciary.

TITLE I—ANTIFRAUD NETWORK

SUBTITLE A—DIRECTION TO FINANCIAL REGULATORS

Section 100. Creation and Operation of the Network. Provisions

contained in Section 100 were not referred to the Committee on the

Judiciary, see H. Rept. 107–192 for analysis.

SUBTITLE B—POTENTIAL ESTABLISHMENT OF ANTIFRAUD

SUBCOMMITTEE

Section 101. Establishment. This section authorizes the establishment of an ‘‘Antifraud Subcommittee’’ (the Subcommittee) within

the President’s Working Group on Financial Markets, which operates pursuant to Executive Order 12631. In addition, this section

establishes liaisons between the Subcommittee, representatives

from the financial services industries, and representatives from law

enforcement agencies. Liaison representatives from law enforcement agencies include: a representative of the Department of Justice, appointed by the Attorney General; a representative of the

Federal Bureau of Investigation (FBI), appointed by the Director of

the FBI; a representative of the United States Secret Service, appointed by the Director of the Secret Service; and a representative

of the Financial Crimes Enforcement Network, appointed by the

Secretary of Treasury.

Section 102. Purposes of the Subcommittee. This section authorizes the Subcommittee to coordinate various local, State, and Federal antifraud databases through a network, providing information

to financial services industries’ regulators. Subparagraph, 102(a)(3)

states that ‘‘where appropriate’’ law enforcement agencies are authorized to participate in this network. The committee intends that

‘‘where appropriate’’ does not limit law enforcement agencies ability

to participate in the network and that it provides discretion to law

enforcement agencies to determine which databases are appropriate to coordinate on this network. For instance, a law enforcement agency would have the discretion to determine whether law

enforcement sensitive or confidential database are appropriate to

be coordinated on this network. Therefore, the Subcommittee does

not have authority to compel a law enforcement agency or it’s liaison to provide access or to share any confidential or law enforcement sensitive information. In addition, this section provides reVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00008 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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quirements for participation on the antifraud network, due process

considerations, privacy protections, and performance reporting requirements. Finally, this section does not affect existing information sharing agreements already in place and does not provide authority for the Subcommittee to mandate the creation of new databases or require costly modifications to existing databases.

Section 103. Chairperson; term of Chairperson; Meetings; Officers

and Staff. Provisions contained in Section 103 were not referred to

the Committee on the Judiciary, see H. Rept. 107–192 for analysis.

Section 104. Nonagency Status. The provision contained in Section 104 was not referred to the Committee on the Judiciary, see

H. Rept. 107–192 for analysis.

Section 105. Powers of the Subcommittee. This section authorizes

the Subcommittee to collect information through its liaisons describing existing antifraud databases, limits additional compensation for members and liaisons to the Subcommittee, and authorizes

the Subcommittee to request additional administrative, technical,

or other support service to carry out the purposes of section 102(a).

With respect to collecting information describing existing antifraud databases, this authority is limited in section 105(b) ‘‘to the

extent permitted by law.’’ Therefore, the Subcommittee is authorized only to collect antifraud information already available under

existing law. While this provision requires liaisons to furnish information about existing databases, any such database deemed ‘‘law

enforcement sensitive’’ or confidential by a law enforcement agency

or it’s liaison would be excluded from this requirement. Furthermore, nothing in 105(b) provides the Subcommittee with the authority to compel the liaison to produce information. In addition,

while paragraph 105(d) authorizes the Subcommittee to request additional support service to carry out the purposes of section 102(a),

this request is not mandatory. Creating this information sharing

network will require technical support, this section authorizes the

Antifraud Subcommittee to request and accept support services

that it may find necessary.

Section 106. Agreement on Cost Structure. The provision contained in Section 106 was not referred to the Committee on the Judiciary, see H. Rept. 107–192 for analysis.

SUBTITLE C—REGULATORY PROVISIONS

Section 111. Agency Supervisory Privilege. This section defines

Confidential Supervisory Information (CSI), creates a special privileged status for CSI, and establishes rules for disclosing CSI and

resolving disputes over disclosing CSI. It is the intent of the committee that this privileged status for CSI does not confer any new

right or privilege to obstruct, delay, or interfere with the ability of

any law enforcement agency to access CSI under existing

authorityerefore, any privileged established pursuant to this section shall not be asserted in response to a request from law enforcement, the United States Department of Justice, and criminal

law enforcement agencies with relevant jurisdiction. The status of

CSI does not create a new privilege from law enforcement investigations. While section 111(b)(2)(A) establishes specific exceptions

to the CSI privilege status for the Government Accounting Office,

duly authorized Committees of Congress, and Federal agencies

with oversight authority, these entities cannot access this informaVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00009 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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tion because it is compiled on an ad-hoc basis. Law enforcement investigations on the other hand, routinely access this information

following various rules of criminal procedure and protections of the

Constitution. Therefore, it is the Committee’s intent that section

111(b)(2) create no new limitation on law enforcement agencies

ability to access this information. It is inherent in establishing any

national antifraud database network that law enforcement agencies

ability to access information not only be preserved by the network,

it is expected to be enhanced provided that constitutional and procedural laws do not prohibit this access. Finally, sections 111(e)(2),

and 111(k)(3) provides an action for declaratory judgment in Federal District Court over disputes concerning disclosure of CSI or

CSI related information. This declaratory judgement is intended to

offer efficient and effective resolution of these disputes.

Section 112. Confidentiality of Information. Provisions contained

in Section 112 were not referred to the Committee on the Judiciary,

see H. Rept. 107–192 for analysis.

Section 113. Liability Provisions. This section establishes civil liability and criminalizes and penalizes the unlawful disclosure of information that is confidential or privileged pursuant to the Financial Services Antifraud Network Act of 2001. It is the Committee’s

intent that section 113 does not create any new potential criminal

or civil liability for law enforcement individuals that disclose confidential or privileged information pursuant to the Financial Services Antifraud Network Act of 2001.

Section 114. Authorization for Identification and Criminal Background Check. This section authorizes a procedure for financial

services industry regulators to request criminal background checks

from the United States Department of Justice and provide this information to an authorized agent. This section restricts access to

this information by carefully defining an authorized agent, which

is limited to only highly accountable individuals already in law enforcement or closely associated to law enforcement. Also, the provision delineates permissible uses of background information, establishes a criminal and civil penalties for improper use of background

information, and provides a good faith exception for use of background information. This section clarifies section 1033(e)(1)(B) of

Tilte 18, United States Codes, by limiting criminal liability for a financial services industry employer for the illegal conduct of an employee under section 1033(e)(1)(A), so long as the employee is authorized to be in the business of insurance, is licensed to be in the

insurance business by a state insurance regulator that performs

criminal background checks pursuant to this section of the Financial Services Antifraud Network Act of 2001, and the employer does

not know the employee is in violation of section 1033(e)(1)(A). Also,

the section provides authority for the Attorney General to collect

reasonable fees for fulfilling information requests under this section, that the Attorney General is not precluded from issuing regulations to carry out this section, and that existing authorities allowing access to criminal background records are not limited or

superceded by this section.

It is the Committee’s intent that subparagraph 114(a)(1)(B)(ii)

serve only as an option under the discretion of the Attorney General should the Department of Justice develop the technology to

limit background information.

11

Also, it is the Committee’s intent that paragraph 114(a)(4)(A)

does not limit the Attorney General’s ability to share or receive

critical information with any law enforcement agency or financial

services industry regulator. This subsection provides that the Attorney General may elect to withhold background information from

State financial regulators that are not in compliance with section

321 of P.L. 106–102. In turn, this subsection does not preclude the

Attorney General from sharing any information from any state financial services regulator.

Section 115. Definitions. Provisions contained in Section 100

were not referred to the Committee on the Judiciary, see H. Rept.

107–192 for analysis.

Section 116. Technical and conforming amendments to other acts.

Provisions contained in Section 100 were not referred to the Committee on the Judiciary, see H. Rept. 107–192 for analysis.

Section 117. Audit of State Insurance Regulators. Provisions contained in Section 100 were not referred to the Committee on the

Judiciary, see H. Rept. 107–192 for analysis.

TITLE II—SECURITIES INDUSTRY COORDINATION

SUBTITLE A—DISCIPLINARY INFORMATION

Section 201. Investment Advisers Act of 1940. Provisions contained in Section 100 were not referred to the Committee on the

Judiciary, see H. Rept. 107–192 for analysis.

Section 202. Securities Exchange Act of 1934. Provisions contained in Section 100 were not referred to the Committee on the

Judiciary, see H. Rept. 107–192 for analysis.

SUBTITLE B—PREVENTING MIGRATION OF ROGUE FINANCIAL

PROFESSIONALS TO THE SECURITIES INDUSTRY

Section 211. Securities Exchange Act of 1934. Provisions contained in Section 100 were not referred to the Committee on the

Judiciary, see H. Rept. 107–192 for analysis.

Section 212. Investment Advisers Act of 1940. Provisions contained in Section 100 were not referred to the Committee on the

Judiciary, see H. Rept. 107–192 for analysis.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

The bill, as reported by this committee, does not make any

changes to existing law. The bill, as reported by the Committee on

Financial Services, does make changes to existing law, which are

shown in the report filed on the bill by that committee (Rept. 107–

192, Part 1).

MARKUP TRANSCRIPT

BUSINESS MEETING

WEDNESDAY, OCTOBER 10, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The Committee met, pursuant to call, at 2:35 p.m., in Room 2141

Rayburn House Office Building, Hon. F. James Sensenbrenner, Jr.

(Chairman of the Committee) presiding.

12

Chairman SENSENBRENNER. The Committee will be in order. A

working quorum of 13 is present, and pursuant to notice, I now call

up the bill H.R. 1408, the Financial Services Antifraud Network

Act of 2001, for purposes of markup, and move its favorable recommendation to the House.

[The bill, H.R. 1408, follows:]

13

1

107TH CONGRESS

1ST SESSION H. R. 1408

[Report No. 107– ]

To safeguard the public from fraud in the financial services industry, to

streamline and facilitate the antifraud information-sharing efforts of Federal and State regulators, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 4, 2001

Mr. ROGERS of Michigan (for himself, Mr. OXLEY, Mrs. KELLY, Mr. BACHUS,

and Mr. TIBERI) introduced the following bill; which was referred to the

Committee on Financial Services, and in addition to the Committees on

the Judiciary, and Agriculture, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions

as fall within the jurisdiction of the committee concerned

JULY , 2001

Reported from the Committee on Financial Services with an amendment

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on April 4, 2001]

A BILL

To safeguard the public from fraud in the financial services

industry, to streamline and facilitate the antifraud information-sharing efforts of Federal and State regulators,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

14

2

1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

2 (a) SHORT TITLE.—This Act may be cited as the ‘‘Fi3 nancial Services Antifraud Network Act of 2001’’.

4 (b) TABLE OF CONTENTS.—The table of contents of this

5 Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Purposes.

TITLE I—ANTIFRAUD NETWORK

Subtitle A—Direction to Financial Regulators

Sec. 100. Creation and operation of the network.

Subtitle B—Potential Establishment of Antifraud Subcommittee

Sec. 101. Establishment.

Sec. 102. Purposes of the Subcommittee.

Sec. 103. Chairperson; term of chairperson; meetings; officers and staff.

Sec. 104. Nonagency status.

Sec. 105. Powers of the Subcommittee.

Sec. 106. Agreement on cost structure.

Subtitle C—Regulatory Provisions

Sec. 111. Agency supervisory privilege.

Sec. 112. Confidentiality of information.

Sec. 113. Liability provisions.

Sec. 114. Authorization for identification and criminal background check.

Sec. 115. Definitions.

Sec. 116. Technical and conforming amendments to other acts.

Sec. 117. Audit of State insurance regulators.

TITLE II—SECURITIES INDUSTRY COORDINATION

Subtitle A—Disciplinary Information

Sec. 201. Investment Advisers Act of 1940.

Sec. 202. Securities Exchange Act of 1934.

Subtitle B—Preventing Migration of Rogue Financial Professionals to the

Securities Industry

Sec. 211. Securities Exchange Act of 1934.

Sec. 212. Investment Advisers Act of 1940.

6 SEC. 2. PURPOSES.

7 The purposes of this Act are—

15

3

1 (1) to safeguard the public from fraud in the fi2 nancial services industry;

3 (2) to streamline the antifraud coordination ef4 forts of Federal and State regulators and prevent fail5 ure to communicate essential information;

6 (3) to reduce duplicative information requests

7 by, and other inefficiencies of, financial services regu8 lation;

9 (4) to assist financial regulators in detecting

10 patterns of fraud, particularly patterns that only be11 come apparent when viewed across the full spectrum

12 of the financial services industry; and

13 (5) to take advantage of Internet technology and

14 other advanced data-sharing technology to modernize

15 the fight against fraud in all of its evolving mani16 festations and permutations.

17 TITLE I—ANTIFRAUD NETWORK

18 Subtitle A—Direction to Financial

19 Regulators

20 SEC. 100. CREATION AND OPERATION OF THE NETWORK.

21 (a) SHARING OF PUBLIC INFORMATION.—The finan22 cial regulators shall, to the extent practicable and appro23 priate and in consultation with other relevant and appro24 priate agencies and parties—

16

4

1 (1) develop procedures to provide for a network

2 for the sharing of antifraud information; and

3 (2) coordinate to further improve upon the anti4 fraud efforts of the participants in the network as

5 such participants deem appropriate over time.

6 (b) MINIMUM REQUIREMENTS.—The procedures de7 scribed in subsection (a) shall—

8 (1) provide for the sharing of public final dis9 ciplinary and formal enforcement actions taken by

10 the financial regulators that are accessible electroni11 cally relating to the conduct of persons engaged in the

12 business of conducting financial activities that is

13 fraudulent, dishonest, or involves a breach of trust or

14 relates to the failure to register with the appropriate

15 financial regulator as required by law;

16 (2) include a plan for considering the sharing

17 among the participants of other relevant and useful

18 antifraud information relating to companies and

19 other persons engaged in conducting financial activi20 ties, to the extent practicable and appropriate when

21 adequate privacy, confidentiality, and security safe22 guards governing access to, and the use of, such infor23 mation have been developed that—

24 (A) is accessible by the public; or

17

5

1 (B) pertains to information, that does not

2 include personally identifiable information on

3 consumers, on—

4 (i) licenses and applications, financial

5 affiliations and name-relationships, aggre6 gate trend data, appraisals, or reports filed

7 by a regulated entity with a participant; or

8 (ii) similar information generated by

9 or for a participant if—

10 (I) such information is being

11 shared for the purpose of verifying an

12 application or other report filed by a

13 regulated entity; and

14 (II) the participant determines

15 such information is factual and sub16 stantiated; and

17 (3) provide that, if a financial regulator takes

18 an adverse action against a person engaged in the

19 business of conducting financial activities on the basis

20 of information described in paragraph (1) or (2) that

21 was received from another participant through the

22 network, the regulator shall—

23 (A) notify the person of the identity of the

24 participant from whom such information was re25 ceived;

18

6

1 (B) provide the person with a specific and

2 detailed description of the information that was

3 received from the other participant through the

4 network and would be relied on in taking the ad5 verse action; and

6 (C) notify the person of the right to a rea7 sonable opportunity to respond to such informa8 tion.

9 (c) PROVISIONS RELATING TO REQUIREMENTS.—

10 (1) TIME OF NOTICE.—The notice to any person,

11 and the opportunity to respond, under subsection

12 (b)(3) shall be provided to the person a reasonable pe13 riod of time before any final action against the person

14 which is based on information referred to in such

15 paragraph is completed, unless the financial regulator

16 determines that such advance notice and opportunity

17 to respond is impracticable or inappropriate, in

18 which case the notice and opportunity to respond

19 shall be provided at the time of such final action.

20 (2) VERIFICATION OR SUBSTANTIATION OF IN21 FORMATION.—With respect to subsection (b)(3), a

22 delay in the consideration of a license, application,

23 report, or other request for the purpose of verifying or

24 substantiating information relating to such license,

25 application, report, or other request shall not be treatVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00018 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
19

7

1 ed as an adverse action if the verification or substan2 tiation of such information is completed within a rea3 sonable time.

4 (d) IMPLEMENTATION.—

5 (1) SUBMISSION OF PLAN.—Before the end of the

6 6-month period beginning on the date of the enact7 ment of this Act, the Federal financial regulators

8 shall submit to Congress a plan detailing how the fi9 nancial regulators (and any association representing

10 financial regulators) will meet the requirements of

11 subsections (a) and (b).

12 (2) DEADLINE FOR IMPLEMENTATION.—Before

13 the end of the 2-year period beginning on the date of

14 the enactment of this Act, the financial regulators

15 shall establish the network described in subsections (a)

16 and (b).

17 (e) FINANCIAL REGULATORS DEFINED.—For the pur18 poses of this section, the term ‘‘financial regulators’’ means

19 the financial regulators described in subparagraphs (A)

20 through (Q) of section 115(3).

21 (f) DETERMINATION OF IMPLEMENTATION OF SUB22 TITLE B.—

23 (1) IN GENERAL.—The provisions of subtitle B

24 shall take effect only if the Secretary of the Treasury,

25 or a designee of the Secretary, before the end of the

20

8

1 30-day period beginning at the end of the period re2 ferred to in—

3 (A) subsection (d)(1), does not determine

4 that the Federal financial regulators have sub5 mitted a plan which substantially meets the re6 quirements of such subsection; or

7 (B) subsection (d)(2), does not determine

8 that the financial regulators have established a

9 network that substantially complies with the re10 quirements of subsections (a) and (b).

11 (2) SCOPE OF APPLICATION.—This subtitle shall

12 cease to apply as of the date subtitle B takes effect.

13 (g) USE OF CENTRALIZED DATABASES.—

14 (1) IN GENERAL.—A financial regulator shall be

15 deemed to have met the requirements of subsection

16 (b)(1) if—

17 (A) the participants have access to a cen18 tralized database that contains information on

19 public final disciplinary or formal enforcement

20 actions similar to that described in such sub21 section; or

22 (B) the financial regulator makes the infor23 mation described in such subsection available to

24 the public over the Internet.

21

9

1 (2) STATE SUPERVISORS.—It is the sense of the

2 Congress that the National Association of Insurance

3 Commissioners, the Conference of State Bank Super4 visors, the American Council of State Savings Super5 visors, the National Association of State Credit Union

6 Supervisors, and the North American Securities Ad7 ministrators Association should develop model guide8 lines for regulators in their respective regulated finan9 cial industries, where appropriate, to promote uni10 form standards for sharing information with the net11 work under this section.

12 (h) FINANCIAL REGULATOR CONTROL OF ACCESS.—

13 (1) IN GENERAL.—Except as provided in para14 graph (4), each participant that allows access to its

15 databases or information by other participants

16 through the network may establish parameters for

17 controlling or limiting such access, including the reg18 ulation of—

19 (A) the type or category of information that

20 may be accessed by other participants and the

21 extent to which any such type or category of in22 formation may be accessed;

23 (B) the participants that may have access

24 to the database or any specific type or category

25 of information in the database (whether for reaVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00021 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
22

10

1 sons of cost reimbursement, data security, effi2 ciency, or otherwise); and

3 (C) the disclosure by any other participant

4 of any type or category of information that may

5 be accessed by the participant.

6 (2) PROCEDURES.—A participant may establish

7 the parameters described in paragraph (1) by regula8 tion, order, or guideline or on a case-by-case basis.

9 (3) DISCLAIMER.—

10 (A) IN GENERAL.—Each participant shall

11 ensure that any transfer of information through

12 the network under this section, other than infor13 mation described in paragraphs (1) and (2) of

14 subsection (b), from such participant to another

15 participant is subject to a disclaimer that the in16 formation accessed may be unsubstantiated and

17 may not be relied on as the basis for denying

18 any application or license.

19 (B) REGULATORY FLEXIBILITY.—Each fi20 nancial regulator may develop guidelines, as the

21 regulator determines to be appropriate, gov22 erning the location, wording, and frequency of

23 disclaimers under this paragraph and the man24 ner in which any such disclaimer shall be made.

23

11

1 (4) FINAL DISCIPLINARY AND FORMAL ENFORCE2 MENT ACTIONS NOT SUBJECT TO LIMITATION.—This

3 subsection, and standards or procedures adopted by

4 any participant under this subsection, shall not apply

5 with respect to information described in paragraphs

6 (1) and (2) of subsection (b).

7 (5) NO EFFECT ON PUBLIC OR COMPANY AC8 CESS.—No provision of this section shall replace, su9 persede, or otherwise affect access to any databases

10 maintained by any Federal or State regulator, or any

11 entity representing any such regulator, which are ac12 cessible by the public or persons engaged in the busi13 ness of conducting financial activities.

14 (i) ELIGIBILITY REQUIREMENTS FOR STATE SECURI15 TIES ADMINISTRATORS.—

16 (1) IN GENERAL.—No State securities adminis17 trator shall be eligible to be a participant and access

18 the network unless—

19 (A) such State securities administrator par20 ticipates in a centralized database for broker21 dealers, broker-dealer agents, investment advis22 ers, and investment advisor representatives, reg23 istered or required to be registered, as designated

24 by the North American Securities Administra25 tors Association; and

24

12

1 (B) such State securities administrator re2 quires the broker-dealer, broker-dealer agent, in3 vestment adviser, or investment adviser rep4 resentative, currently registered or required to be

5 registered, to file any application, amendment to

6 an application, or a renewal of an application

7 through the centralized registration database.

8 (2) TIME DELAY FOR PARTICIPATION IN DATA9 BASES.—The provisions of paragraph (1) shall not

10 become effective until 3 years after the date of enact11 ment of this Act.

12 (j) ELIGIBILITY REQUIREMENTS FOR STATE INSUR13 ANCE COMMISSIONERS.—

14 (1) PARTICIPATION IN DATABASES.—No State

15 insurance commissioner shall be eligible to access the

16 network unless such commissioner participates with

17 other State insurance commissioners—

18 (A) in a centralized database addressing

19 disciplinary or enforcement actions taken

20 against persons engaged in the business of insur21 ance, such as the Regulatory Information Re22 trieval System maintained by the National Asso23 ciation of Insurance Commissioners or any net24 work or database designated by such Association

25 as a successor to such System; and

25

13

1 (B) in centralized databases addressing,

2 with respect to persons engaged in the business

3 of insurance—

4 (i) corporate and other business affili5 ations or relationships, such as the Pro6 ducer Database maintained by the National

7 Association of Insurance Commissioners or

8 any network or database designated by such

9 Association as a successor to such Database;

10 and

11 (ii) consumer complaints, such as the

12 Complaints Database maintained by the

13 National Association of Insurance Commis14 sioners or any network or database des15 ignated by such Association as a successor

16 to such Database.

17 (2) TIME DELAY FOR PARTICIPATION IN DATA18 BASES.—The provisions of subparagraph (1)(B) of

19 this section shall not become effective until 3 years

20 after the date of enactment of this Act.

21 (3) ACCREDITATION.—No State insurance com22 missioner shall be eligible to access the network unless

23 the State insurance department which such commis24 sioner represents meets 1 of the following accredita25 tion requirements at the time of access to the network:

26

14

1 (A) Is accredited by the National Associa2 tion of Insurance Commissioners.

3 (B) Has an application for accredited sta4 tus pending with the National Association of In5 surance Commissioners.

6 (C) Has a determination by the Sub7 committee in effect that such State insurance de8 partment meets or exceeds the standards estab9 lished by the National Association of Insurance

10 Commissioners for accreditation.

11 (k) STANDARDS.—Each financial regulator shall con12 sider developing guidelines for participants on—

13 (1) how to denote which types of information are

14 to receive different levels of confidentiality protection;

15 and

16 (2) how entities or associations that act as

17 agents for financial regulators should denote such

18 agency status when acting in that capacity.

19 (l) OTHER SHARING ARRANGEMENTS NOT AF20 FECTED.—No provision of this section shall be construed

21 as limiting or otherwise affecting the authority of a finan22 cial regulator to provide any person, including another par23 ticipant, access to any information in accordance with any

24 provision of law other than this Act.

27

15

1 Subtitle B—Potential Establish2 ment of Antifraud Subcommittee

3 SEC. 101. ESTABLISHMENT.

4 (a) IN GENERAL.—Unless the determinations described

5 in section 100(f) are made, after the applicable date de6 scribed in such section there shall be established within the

7 President’s Working Group on Financial Markets (as estab8 lished by Executive Order No. 12631) a subcommittee to

9 be known as the ‘‘Antifraud Subcommittee’’ (hereafter in

10 this title referred to as the ‘‘Subcommittee’’) which shall

11 consist of the following members:

12 (1) The Secretary of the Treasury, or a designee

13 of the Secretary.

14 (2) The Chairman of the Securities and Ex15 change Commission or a designee of the Chairman.

16 (3) A State insurance commissioner designated

17 by the National Association of Insurance Commis18 sioners, or a designee of such commissioner.

19 (4) The Chairman of the Commodity Futures

20 Trading Commission or a designee of such Chairman.

21 (5) A designee of the Chairman of the Federal

22 Financial Institutions Examination Council.

23 (b) FINANCIAL LIAISONS.—The following shall serve as

24 liaisons between the Subcommittee and the agencies rep25 resented by each such liaison:

28

16

1 (1) A representative of each Federal banking

2 agency appointed by the head of each such agency.

3 (2) A representative of the National Credit

4 Union Administration appointed by the National

5 Credit Union Administration Board.

6 (3) A representative of the Farm Credit Admin7 istration, appointed by the Farm Credit Administra8 tion Board.

9 (4) A representative of the Federal Housing Fi10 nance Board, appointed by such Board.

11 (5) A representative of the Office of Federal

12 Housing Enterprise Oversight of the Department of

13 Housing and Urban Development appointed by the

14 Director of such Office.

15 (6) A representative of the Appraisal Sub16 committee of the Financial Institutions Examination

17 Council.

18 (7) A representative of State bank supervisors

19 designated by the Conference of State Bank Super20 visors.

21 (8) A representative of State savings association

22 supervisors designated by the American Council of

23 State Savings Supervisors.

29

17

1 (9) A representative of State credit union super2 visors designated by the National Association of State

3 Credit Union Supervisors.

4 (10) A representative of State securities adminis5 trators designated by the North American Securities

6 Administrators Association.

7 (11) A representative of the National Association

8 of Securities Dealers appointed by the National Asso9 ciation of Securities Dealers.

10 (12) A representative of the National Futures As11 sociation appointed by the National Futures Associa12 tion.

13 (13) Any other financial liaison as the Sub14 committee may provide to represent any other finan15 cial regulator or foreign financial regulator, includ16 ing self-regulatory agencies or organizations that

17 maintain significant databases on persons engaged in

18 the business of conducting financial activities, des19 ignated in the manner provided by the Subcommittee.

20 (c) OTHER LIAISONS.—

21 (1) LAW ENFORCEMENT LIAISONS.—The fol22 lowing shall serve as liaisons between the Sub23 committee and the agencies represented by each such

24 liaison:

30

18

1 (A) A representative of the Department of

2 Justice appointed by the Attorney General.

3 (B) A representative of the Federal Bureau

4 of Investigation appointed by the Director of

5 such Bureau.

6 (C) A representative of the United States

7 Secret Service appointed by the Director of such

8 Service.

9 (D) A representative of the Financial

10 Crimes Enforcement Network (as established by

11 the Secretary of the Treasury) appointed by the

12 Secretary of the Treasury.

13 (2) SUBCOMMITTEE APPOINTED LIAISONS.—The

14 Subcommittee may provide for any other liaison to

15 represent any other regulator, including self-regu16 latory agencies or organizations that maintain data17 bases on persons engaged in the business of con18 ducting financial activities, designated in the manner

19 provided by the Subcommittee.

20 (d) VACANCY.—If, for any reason, the position of any

21 member of or liaison to the Subcommittee is not filled with22 in a reasonable period of time after being created or becom23 ing vacant, the President shall appoint an individual to

24 fill the position after consulting the agency or entity to be

25 represented by such member or liaison, and to the extent

31

19

1 possible, shall appoint such individual from a list of pos2 sible representatives submitted by such agency or entity.

3 (e) REORGANIZATION AUTHORITY.—

4 (1) IN GENERAL.—If the President disbands or

5 otherwise significantly modifies the Working Group

6 referred to in subsection (a), the President shall pro7 vide for the continuation of the Subcommittee’s co8 ordination functions.

9 (2) MEMBER AND LIAISON WITHDRAWAL.—If the

10 President materially alters the structure or duties of

11 the Subcommittee, any member of or liaison to the

12 Subcommittee may withdraw from the Subcommittee.

13 SEC. 102. PURPOSES OF THE SUBCOMMITTEE.

14 (a) IN GENERAL.—The purposes of the Subcommittee

15 are as follows:

16 (1) Coordinate access by the participants to

17 antifraud databases of various regulators, by facili18 tating the establishment, maintenance, and use of a

19 network of existing antifraud information maintained

20 by such regulators with respect to persons engaged in

21 the business of conducting financial activities.

22 (2) Coordinate access by each participant to such

23 network in a manner that allows the participant to

24 review, at a minimal cost, existing information in the

25 databases of other regulators, as a part of licensure,

32

20

1 change of control, or investigation, concerning any

2 person engaged in the business of conducting finan3 cial activities.

4 (3) Coordinate information sharing, where ap5 propriate, among State, Federal, and foreign finan6 cial regulators, and law enforcement agencies, where

7 sufficient privacy and confidentiality safeguards

8 exist.

9 (4) Consider coordinating development by par10 ticipants of a networked name-relationship index for

11 persons engaged in the business of conducting finan12 cial activities using information from the databases of

13 regulators, to the extent such information is available.

14 (5) Advise participants on coordinating their

15 antifraud databases with the network.

16 (6) Coordinate development of guidelines by par17 ticipants for ensuring appropriate privacy, confiden18 tiality, and security of shared information, including

19 tracking systems or testing audits, as appropriate.

20 (b) CRITERIA FOR NETWORK WITH RESPECT TO ANY

21 PERSON ENGAGED IN THE BUSINESS OF CONDUCTING FI22 NANCIAL ACTIVITIES.—

23 (1) FINAL DISCIPLINARY AND FORMAL ENFORCE24 MENT ACTIONS.—Each financial regulator that is rep25 resented by a member of the Subcommittee under secVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00032 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
33

21

1 tion 101(a) or by a financial liaison to the Sub2 committee under section 101(b) shall allow any par3 ticipant access, through the network, to any public

4 final disciplinary or formal enforcement action by

5 such regulator which is accessible electronically relat6 ing to the conduct of persons engaged in the business

7 of conducting financial activities that is fraudulent or

8 dishonest, involves a breach of trust, or relates to the

9 failure to register with the appropriate financial reg10 ulator as required by law.

11 (2) SENSE OF THE CONGRESS ON OTHER INFOR12 MATION.—It is the sense of the Congress that the fi13 nancial regulators should consider sharing through

14 the network other relevant and useful antifraud infor15 mation relating to companies and other persons en16 gaged in conducting financial activities, to the extent

17 practicable and appropriate when adequate privacy,

18 confidentiality, and security safeguards governing ac19 cess to and the use of such information have been de20 veloped that—

21 (A) is accessible by the public; or

22 (B) consists of information, that does not

23 include personally identifiable information on

24 consumers, on—

34

22

1 (i) licenses and applications, financial

2 affiliations and name-relationships, aggre3 gate trend data, or reports filed by a regu4 lated entity with the participant; or

5 (ii) similar information generated by

6 or for a participant if—

7 (I) such information is being

8 shared for the purpose of verifying an

9 application or other report filed by a

10 regulated entity; and

11 (II) the participant determines

12 such information is factual and sub13 stantiated; and

14 (3) NOTICE AND RESPONSE.—If a financial reg15 ulator takes an adverse action against a person en16 gaged in the business of conducting financial activi17 ties on the basis of information described in para18 graph (1) or (2) that was received from another par19 ticipant through the network, the regulator shall—

20 (A) notify the person of the identity of the

21 participant from whom such information was re22 ceived;

23 (B) provide the person with a specific and

24 detailed description of the information that was

25 received from the other participant through the

35

23

1 network and would be relied on in taking the ad2 verse action; and

3 (C) notify the person of the right to a rea4 sonable opportunity to respond to such informa5 tion.

6 (4) PROVISIONS RELATING TO REQUIREMENTS.—

7 (A) TIME OF NOTICE.—Any notice to any

8 person, and an opportunity to respond, under

9 paragraph (3) shall be provided to the person a

10 reasonable period of time before any final action

11 against the person which is based on information

12 referred to in such paragraph is completed, un13 less the financial regulator determines that such

14 advance notice and opportunity to respond is

15 impracticable or inappropriate, in which case

16 the notice and opportunity to respond shall be

17 provided at the time of such final action.

18 (B) VERIFICATION OR SUBSTANTIATION OF

19 INFORMATION.—With respect to information re20 ferred to in paragraph (3), a delay in the con21 sideration of a license, application, report, or

22 other request for the purpose of verifying or sub23 stantiating information relating to such license,

24 application, report, or other request shall not be

25 treated as an adverse action if the verification or

36

24

1 substantiation of such information is completed

2 within a reasonable time.

3 (5) USE OF CENTRALIZED DATABASES.—

4 (A) IN GENERAL.—A financial regulator

5 shall be deemed to have met the requirements of

6 paragraph (1) if the Subcommittee determines

7 that the participants have access to a centralized

8 database that contains information on public

9 final disciplinary or formal enforcement actions

10 similar to that described in paragraph (1) or if

11 the financial regulator makes the information

12 described in paragraph (1) available to the pub13 lic over the Internet.

14 (B) FACTORS FOR DETERMINATION.—The

15 Subcommittee shall make the determination

16 under subparagraph (A) on an ongoing basis,

17 considering both short-term costs and techno18 logical limitations, as well as the need for long19 term comprehensive coverage, and other appro20 priate factors.

21 (C) STATE SUPERVISORS.—It is the sense of

22 the Congress that the National Association of In23 surance Commissioners, the Conference of State

24 Bank Supervisors, the American Council of State

25 Savings Supervisors, the National Association of

37

25

1 State Credit Union Supervisors, and the North

2 American Securities Administrators Association

3 should develop model guidelines for regulators in

4 their respective regulated financial industries,

5 where appropriate, to promote uniform stand6 ards for sharing information with the network

7 under this section.

8 (c) FINANCIAL REGULATOR CONTROL OF ACCESS.—

9 (1) IN GENERAL.—Except as provided in para10 graph (4), each participant that allows access to its

11 databases or information by other participants

12 through the network may establish parameters for

13 controlling or limiting such access, including the reg14 ulation of—

15 (A) the type or category of information that

16 may be accessed by other participants and the

17 extent to which any such type or category of in18 formation may be accessed;

19 (B) the participants that may have access

20 to the database or any specific type or category

21 of information in the database (whether for rea22 sons of cost reimbursement, data security, effi23 ciency, or otherwise); and

38

26

1 (C) the disclosure by any other participant

2 of any type or category of information that may

3 be accessed by the participant.

4 (2) PROCEDURES.—A participant may establish

5 the parameters described in paragraph (1) by regula6 tion, order, or guideline or on a case-by-case basis.

7 (3) DISCLAIMER.—

8 (A) IN GENERAL.—Each participant shall

9 ensure that any transfer of information through

10 the network under this section, other than infor11 mation described in paragraphs (1) and (2) of

12 subsection (b), from such participant to another

13 participant is subject to a disclaimer that the in14 formation accessed may be unsubstantiated and

15 may not be relied on as the basis for denying

16 any application or license.

17 (B) SUBCOMMITTEE FLEXIBILITY.—The

18 Subcommittee may prescribe such guidelines as

19 the Subcommittee determines to be appropriate

20 governing the location, wording, and frequency

21 of disclaimers under this paragraph and the

22 manner in which any such disclaimer shall be

23 made.

24 (4) FINAL DISCIPLINARY AND FORMAL ENFORCE25 MENT ACTIONS NOT SUBJECT TO LIMITATION.—This

39

27

1 subsection, and standards or procedures adopted by

2 any participant under this subsection, shall not apply

3 with respect to information described in paragraphs

4 (1) and (2) of subsection (b).

5 (5) NO EFFECT ON PUBLIC OR COMPANY AC6 CESS.—No provision of this section shall replace, su7 persede, or otherwise affect access to any databases

8 maintained by any Federal or State regulator, or any

9 entity representing any such regulator, which are ac10 cessible by the public or persons engaged in the busi11 ness of conducting financial activities.

12 (d) ELIGIBILITY REQUIREMENTS FOR STATE SECURI13 TIES ADMINISTRATORS.—

14 (1) IN GENERAL.—No State securities adminis15 trator shall be eligible to be a participant and access

16 the network unless—

17 (A) such State securities administrator par18 ticipates in a centralized database for broker19 dealers, broker-dealer agents, investment advis20 ers, and investment advisor representatives, reg21 istered or required to be registered, as designated

22 by the North American Securities Administra23 tors Association; and

24 (B) such State securities administrator re25 quires the broker-dealer, broker-dealer agent, inVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00039 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
40

28

1 vestment adviser, or investment adviser rep2 resentative, currently registered or required to be

3 registered, to file any application, amendment to

4 an application, or a renewal of an application

5 through the centralized registration database.

6 (2) TIME DELAY FOR PARTICIPATION IN DATA7 BASES.—The provisions of paragraph (1) shall not

8 become effective until 3 years after the date of enact9 ment of this Act.

10 (e) ELIGIBILITY REQUIREMENTS FOR STATE INSUR11 ANCE COMMISSIONERS.—

12 (1) PARTICIPATION IN DATABASES.—No State

13 insurance commissioner shall be eligible to access the

14 network unless such commissioner participates with

15 other State insurance commissioners—

16 (A) in a centralized database addressing

17 disciplinary or enforcement actions taken

18 against persons engaged in the business of insur19 ance, such as the Regulatory Information Re20 trieval System maintained by the National Asso21 ciation of Insurance Commissioners or any net22 work or database designated by such Association

23 as a successor to such System; and

41

29

1 (B) in centralized databases addressing,

2 with respect to persons engaged in the business

3 of insurance—

4 (i) corporate and other business affili5 ations or relationships, such as the Pro6 ducer Database maintained by the National

7 Association of Insurance Commissioners or

8 any network or database designated by such

9 Association as a successor to such Database;

10 and

11 (ii) consumer complaints, such as the

12 Complaints Database maintained by the

13 National Association of Insurance Commis14 sioners or any network or database des15 ignated by such Association as a successor

16 to such Database.

17 (2) TIME DELAY FOR PARTICIPATION IN DATA18 BASES.—The provisions of subparagraph (1)(B) of

19 this section shall not become effective until 3 years

20 after the date of enactment of this Act.

21 (3) ACCREDITATION.—No State insurance com22 missioner shall be eligible to access the network unless

23 the State insurance department which such commis24 sioner represents meets 1 of the following accredita25 tion requirements at the time of access to the network:

42

30

1 (A) Is accredited by the National Associa2 tion of Insurance Commissioners.

3 (B) Has an application for accredited sta4 tus pending with the National Association of In5 surance Commissioners.

6 (C) Has a determination by the Sub7 committee in effect that such State insurance de8 partment meets or exceeds the standards estab9 lished by the National Association of Insurance

10 Commissioners for accreditation.

11 (f) SUBCOMMITTEE STANDARDS.—The Subcommittee

12 shall consider developing guidelines for participants on—

13 (1) how to denote which types of information are

14 to receive different levels of confidentiality protection;

15 and

16 (2) how entities or associations that act as

17 agents for financial regulators should denote such

18 agency status when acting in that capacity.

19 (g) REPORTING AND FEASIBILITY REQUIREMENTS AND

20 REVIEW OF OPTIMAL NETWORKING METHODS.—

21 (1) REPORT.—Before the end of the 180-day pe22 riod beginning on the date this subtitle takes effect in

23 accordance with section 101(a), and again before the

24 end of the 2-year period beginning on such date, the

25 Subcommittee shall submit a report to the Congress

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1 regarding the methods the regulators plan to use to

2 network information, and a description of any im3 pediments to (or recommended additional legislation

4 for) facilitating the appropriate sharing of such infor5 mation.

6 (2) TIMEFRAME FOR NETWORKING.—

7 (A) IN GENERAL.—The networking of infor8 mation required under subsection (b)(1) shall be

9 established before the end of the 2-year period be10 ginning on the date this subtitle takes effect, un11 less the Subcommittee determines, in conjunction

12 with the liaisons, that such a network cannot be

13 established within such time period in a prac14 ticable and cost-effective manner.

15 (B) REPORTS ON EFFORTS IF TIMEFRAME

16 IS NOT MET.—If the Subcommittee makes such a

17 determination, the Subcommittee shall report an18 nually to the Congress on its efforts to coordinate

19 the sharing of appropriate information among

20 the regulators until the networking requirements

21 are fulfilled.

22 (h) OTHER SHARING ARRANGEMENTS NOT AF23 FECTED.—No provision of this section shall be construed

24 as limiting or otherwise affecting the authority of a finan25 cial regulator or other member or liaison of the SubVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00043 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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1 committee to provide any person, including another partici2 pant, access to any information in accordance with any

3 provision of law other than this Act.

4 (i) NO NEW DATABASES OR EXPENDITURES MAN5 DATED.—In implementing this Act, the Subcommittee shall

6 not have any authority to require a member or liaison to

7 create a new database or otherwise incur significant costs

8 in modifying existing databases for the networking of infor9 mation.

10 SEC. 103. CHAIRPERSON; TERM OF CHAIRPERSON; MEET11 INGS; OFFICERS AND STAFF.

12 (a) CHAIRPERSON.—

13 (1) SELECTION.—The members of the Sub14 committee shall select the Chairperson from among

15 the members of the Subcommittee.

16 (2) TERM.—The term of the Chairperson shall be

17 2 years.

18 (b) MEETINGS.—The Subcommittee shall meet at the

19 call of the Chairperson or a majority of the members when

20 there is business to be conducted.

21 (c) QUORUM.—A majority of members of the Sub22 committee shall constitute a quorum.

23 (d) MAJORITY VOTE.—Decisions of the Subcommittee

24 shall be made by the vote of a majority of the members of

25 the Subcommittee.

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1 (e) OFFICERS AND STAFF.—The Chairperson of the

2 Subcommittee may appoint such officers and staff as may

3 be necessary to carry out the purposes of the Subcommittee.

4 SEC. 104. NONAGENCY STATUS.

5 The Subcommittee shall not be considered an advisory

6 committee for purposes of the Federal Advisory Committee

7 Act or as an agency for purposes of subchapter II of chapter

8 5 of title 5, United States Code.

9 SEC. 105. POWERS OF THE SUBCOMMITTEE.

10 (a) IN GENERAL.—The Subcommittee shall have such

11 powers as are necessary to carry out the purposes of the

12 Subcommittee under this title.

13 (b) INFORMATION TO FACILITATE COORDINATION.—

14 Each agency and entity represented by a member or liaison

15 shall, to the extent permitted by law, provide the Sub16 committee with a description of the types of databases

17 maintained by the agency or entity to assist the Sub18 committee in carrying out the purposes described in section

19 102(a).

20 (c) SERVICE OF MEMBERS AND LIAISONS.—Members

21 of and liaisons to the Subcommittee shall serve without ad22 ditional compensation for their work on the Subcommittee.

23 (d) ADMINISTRATIVE AND TECHNICAL SUPPORT.—The

24 Subcommittee may request that any agency or entity rep25 resented by a member or liaison provide the Subcommittee

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1 with any administrative, technical, or other support service

2 that the Subcommittee determines is necessary or appro3 priate for it to carry out the purposes described in section

4 102(a).

5 SEC. 106. AGREEMENT ON COST STRUCTURE.

6 (a) IN GENERAL.—The Subcommittee shall determine,

7 after consultation with the affected participants or their

8 representatives, the means for providing for any costs the

9 Subcommittee may incur in carrying out the purposes of

10 this subtitle.

11 (b) CONSULTATION AND AGREEMENT ON FEES AND

12 CONTRIBUTIONS.—Notwithstanding any other provision of

13 this subtitle, the Subcommittee may not impose any fee or

14 assessment on, or apportion any contribution against, any

15 member or liaison under this section unless—

16 (1) the Subcommittee consults with such member

17 or liaison; and

18 (2) the member or liaison consents to the

19 amounts, or to a schedule, of such fees, assessments,

20 or contributions.

21 (c) REIMBURSEMENT OF PARTICIPANT COSTS.—Before

22 allowing access by the Subcommittee or a participant to

23 any information described in section 102, other than access

24 described in subsection (b)(1) of such section, a member or

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1 liaison may request the reimbursement of reasonable costs

2 for providing such access.

3 Subtitle C—Regulatory Provisions

4 SEC. 111. AGENCY SUPERVISORY PRIVILEGE.

5 (a) DEFINITIONS.—For purposes of this section, the

6 following definitions shall apply:

7 (1) SUPERVISORY PROCESS.—The term ‘‘super8 visory process’’ means any activity engaged in by a

9 financial regulator to carry out the official respon10 sibilities of the financial regulator with regard to the

11 regulation or supervision of persons engaged in the

12 business of conducting financial activities, including

13 examinations, inspections, visitations, investigations,

14 consumer complaints, or any other regulatory or su15 pervisory activities.

16 (2) CONFIDENTIAL SUPERVISORY INFORMA17 TION.—Subject to paragraph (3), the term ‘‘confiden18 tial supervisory information’’ means any of the fol19 lowing information which is treated as, or considered

20 to be, confidential information by a financial regu21 lator, regardless of the form or format in which the

22 information is created, conveyed, or maintained:

23 (A) Any report of examination, inspection,

24 visitation, or investigation, and information pre25 pared or collected by the financial regulator in

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1 connection with the supervisory process,

2 including—

3 (i) any file, work paper, or similar in4 formation;

5 (ii) any correspondence, communica6 tion, or information exchanged, in connec7 tion with the supervisory process, between a

8 financial regulator and a person engaged in

9 the business of conducting financial activi10 ties; and

11 (iii) any information, including any

12 report, created by or on behalf of a person

13 engaged in the business of conducting finan14 cial activities that is required by, or is pre15 pared at the request of, a financial regu16 lator in connection with the supervisory

17 process.

18 (B) Any record to the extent it contains in19 formation derived from any report, correspond20 ence, communication or other information de21 scribed in subparagraph (A).

22 (C) Any consumer complaints filed with the

23 financial regulator by a consumer with respect

24 to a person engaged in the business of conducting

25 financial activities that have been identified by

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1 the financial regulator as requiring confidential

2 treatment to protect the integrity of an inves3 tigation or the safety of an individual.

4 (3) EXCLUSIONS.—The term ‘‘confidential super5 visory information’’ shall not include—

6 (A) any book, record, or other information,

7 in the possession of, or maintained on behalf of,

8 the person engaged in the business of conducting

9 financial activities that—

10 (i) is not a report required by, or pre11 pared at the request of, a financial regu12 lator; and

13 (ii) is not, and is not derived from,

14 confidential supervisory information that

15 was created or prepared by a financial reg16 ulator; or

17 (B) any information required to be made

18 publicly available by—

19 (i) any applicable Federal law or regu20 lation; or

21 (ii) in the case of confidential super22 visory information created by a State fi23 nancial regulator or requested from a per24 son engaged in the business of conducting

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1 ulator, any applicable State law or regula2 tion that specifically refers to such type of

3 information.

4 (b) FINANCIAL REGULATOR SUPERVISORY PRIVI5 LEGE.—

6 (1) PRIVILEGE ESTABLISHED.—

7 (A) IN GENERAL.—All confidential super8 visory information shall be privileged from dis9 closure to any person except as provided in this

10 section.

11 (B) PROHIBITION ON UNAUTHORIZED DIS12 CLOSURES.—No person in possession of confiden13 tial supervisory information may disclose such

14 information, in whole or in part, without the

15 prior authorization of the financial regulator

16 that created the information, or requested the in17 formation from a person engaged in the business

18 of conducting financial activities, except for a

19 disclosure made in published statistical material

20 that does not disclose, either directly or when

21 used in conjunction with publicly available in22 formation, the affairs of any person or other per23 sonally identifiable information.

24 (C) AGENCY WAIVER.—The financial regu25 lator that created the confidential supervisory

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39

1 information, or requested the confidential super2 visory information from a person engaged in the

3 business of conducting financial activities, may

4 waive, in whole or in part, in the discretion of

5 the regulator, any privilege established under

6 this paragraph with respect to such information.

7 (2) EXCEPTIONS.—

8 (A) ACCESS BY GOVERNMENTAL BODIES.—

9 (i) CONGRESS AND GENERAL ACCOUNT10 ING OFFICE.—No provision of paragraph

11 (1) shall be construed as preventing access

12 to confidential supervisory information by

13 duly authorized committees of the Congress

14 or the Comptroller General of the United

15 States.

16 (ii) FINANCIAL REGULATOR OVER17 SIGHT.—No financial regulator which is de18 scribed in subparagraph (P), (Q), or (R) of

19 section 115(3) and is subject to the oversight

20 of a Federal financial regulator may assert

21 the privilege described in paragraph (1) to

22 prevent access to confidential supervisory

23 information by such Federal financial regu24 lator.

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40

1 (B) PRIVILEGE NOT WAIVED.—If a finan2 cial regulator provides access to confidential su3 pervisory information to the Congress, the Comp4 troller General, or another financial regulator,

5 such action shall not affect the ability of the fi6 nancial regulator to assert any privilege associ7 ated with such information against any other

8 person.

9 (c) TREATMENT OF FOREIGN SUPERVISORY INFORMA10 TION.—In any proceeding before a Federal or State court

11 of the United States, in which a person seeks to compel pro12 duction or disclosure by a financial regulator of informa13 tion or documents prepared or collected by a foreign finan14 cial regulator that would, had the information or document

15 been prepared or collected by a financial regulator, be con16 fidential supervisory information for purposes of this sec17 tion, the information or document shall be privileged to the

18 same extent that the information and documents of finan19 cial regulators are privileged under this title.

20 (d) OTHER PRIVILEGES NOT WAIVED BY DISCLOSURE

21 TO FINANCIAL REGULATOR.—The submission by a person

22 engaged in the business of conducting financial activities

23 of any information to a financial regulator or a foreign

24 financial regulator in connection with the supervisory proc25 ess of such financial regulator or foreign financial regulator

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41

1 shall not waive, destroy, or otherwise affect any privilege

2 such person may claim with respect to such information

3 under Federal or State law as to a party other than such

4 financial regulator or foreign financial regulator.

5 (e) DISCOVERY AND DISCLOSURE OF INFORMATION.—

6 (1) INFORMATION AVAILABLE ONLY FROM FINAN7 CIAL REGULATOR.—

8 (A) IN GENERAL.—No person (other than

9 the financial regulator that created the informa10 tion or requested the information from a person

11 engaged in the business of conducting financial

12 activities) may disclose, in whole or in part, any

13 confidential supervisory information to any per14 son who seeks such information through sub15 poena, discovery procedures, or otherwise.

16 (B) PROCEDURE FOR REQUESTS SUB17 MITTED TO FINANCIAL REGULATOR.—

18 (i) IN GENERAL.—Any request for dis19 covery or disclosure of confidential super20 visory information shall be made to the fi21 nancial regulator that created the informa22 tion, or requested the information from a

23 person engaged in the business of con24 ducting financial activities.

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1 (ii) PROCEDURE.—Upon receiving a

2 request for confidential supervisory infor3 mation, the financial regulator shall deter4 mine within a reasonable time period

5 whether to disclose such information pursu6 ant to procedures and criteria established

7 by the financial regulator.

8 (C) NOTIFICATION.—

9 (i) IN GENERAL.—Before any financial

10 regulator releases information that was re11 quested from a person engaged in the busi12 ness of conducting financial activities to a

13 person under subparagraph (B), notice and

14 a reasonable time for comment shall be pro15 vided to the person from whom such infor16 mation was requested unless such

17 information—

18 (I) is being provided to another fi19 nancial regulator, an agency or entity

20 represented by a liaison to the Sub21 committee, or a Federal, State, or for22 eign government (or any agency or in23 strumentality of any such government

24 acting in any capacity);

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43

1 (II) is being sought for use in a

2 criminal proceeding or investigation,

3 or a regulatory, supervisory, enforce4 ment, or disciplinary administrative

5 proceeding, civil action, or investiga6 tion; or

7 (III) was originally created, or

8 included in information created, by the

9 financial regulator.

10 (ii) PROCEDURES AND REQUIRE11 MENTS.—A financial regulator may pre12 scribe regulations, or issue orders, guide13 lines, or procedures, governing the notice

14 and time period required by clause (i).

15 (2) FEDERAL COURT JURISDICTION OVER DIS16 PUTES.—

17 (A) REMOVAL AUTHORITY.—In any action

18 or proceeding in which a party seeks to compel

19 disclosure of confidential supervisory informa20 tion, a financial regulator may, in its sole dis21 cretion, elect to remove the matter relating to the

22 disclosure issue to Federal court, and, if the ac23 tion is so removed, the appropriate Federal court

24 shall have exclusive jurisdiction over such mat25 ter.

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44

1 (B) JUDICIAL REVIEW.—Judicial review of

2 the final action of a financial regulator with re3 gard to the disposition of a request for confiden4 tial supervisory information shall be before a

5 district court of the United States of competent

6 jurisdiction, subject to chapter 7 of part I of title

7 5, United States Code.

8 (f) AUTHORITY TO INTERVENE.—In the case of any

9 action or proceeding to compel compliance with a subpoena,

10 order, discovery request, or other judicial or administrative

11 process with respect to any confidential supervisory infor12 mation of a financial regulator concerning any person en13 gaged in the business of conducting financial activities, the

14 financial regulator may intervene in such action or pro15 ceeding, and such person may intervene with such regu16 lator, for the purpose of—

17 (1) enforcing the limitations established in para18 graph (1) of subsections (b) and (e);

19 (2) seeking the withdrawal of any compulsory

20 process with respect to such information; and

21 (3) registering appropriate objections with re22 spect to the action or proceeding to the extent the ac23 tion or proceeding relates to or involves such informa24 tion.

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1 (g) RIGHT TO APPEAL.—Any court order that compels

2 production of confidential supervisory information may be

3 immediately appealed by the financial regulator and the

4 order compelling production shall be automatically stayed,

5 pending the outcome of such appeal.

6 (h) REGULATIONS.—

7 (1) AUTHORITY TO PRESCRIBE.—Each financial

8 regulator may prescribe such regulations as the regu9 lator considers to be appropriate, after consultation

10 with the other financial regulators (to the extent the

11 prescribing financial regulator considers appropriate

12 and feasible), to carry out the purposes of this section.

13 (2) AUTHORITY TO REQUIRE NOTICE.—Any reg14 ulations prescribed by a financial regulator under

15 paragraph (1) may require any person in possession

16 of confidential supervisory information to notify the

17 financial regulator whenever the person is served with

18 a subpoena, order, discovery request, or other judicial

19 or administrative process requiring the personal at20 tendance of such person as a witness or requiring the

21 production of such information in any proceeding.

22 (i) ABILITY TO PARTIALLY WAIVE PRIVILEGE WHERE

23 NO OTHER PRIVILEGE APPLIES.—A financial regulator

24 may, to the extent permitted by applicable law governing

25 the disclosure of information by the regulator, authorize a

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46

1 waiver of the privilege established by this section to allow

2 access by a person to confidential supervisory information

3 created by such regulator (or requested by such regulator

4 from any person engaged in the business of conducting fi5 nancial activities), except that—

6 (1) the regulator may place appropriate limits

7 on the use and disclosure of the information shared,

8 and may continue to assert the privilege with respect

9 to any other person that seeks access to the informa10 tion; and

11 (2) such waiver shall not affect any other privi12 lege or confidentiality protection that any party may

13 assert against any person other than such financial

14 regulator.

15 (j) SHARING OF REPORTS.—

16 (1) IN GENERAL.—Subject to subsection (k), no

17 provision of this section shall be construed as pre18 venting a person engaged in the business of con19 ducting financial activities from providing a report

20 that is required by, or prepared at the request of, a

21 financial regulator (the originating financial regu22 lator) to another financial regulator that has the au23 thority to obtain the information from the person

24 under any other provision of law.

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1 (2) PRIVILEGE PRESERVED.—If a person pro2 vides a report referred to in paragraph (1) to a fi3 nancial regulator other than the originating financial

4 regulator, such action shall not affect the ability of

5 the originating financial regulator to assert any

6 privilege that such financial regulator may claim

7 with respect to the report against any person that is

8 not a financial regulator.

9 (k) REQUESTS FOR INFORMATION INVOLVING AN10 OTHER FINANCIAL REGULATOR.—

11 (1) IN GENERAL.—Before any financial regu12 lator requests information from a person engaged in

13 the business of conducting financial activities that is

14 confidential supervisory information contained in a

15 report that was created by another financial regu16 lator, or that was derived from confidential super17 visory information that was created by another finan18 cial regulator, (hereafter in this subsection referred to

19 as the ‘‘originating financial regulator’’), the finan20 cial regulator seeking such information (hereafter in

21 this subsection referred to as the ‘‘requesting financial

22 regulator’’) shall first request such information di23 rectly from the originating financial regulator.

24 (2) NOTICE OF INTENT TO REQUEST INFORMA25 TION FROM FINANCIAL INSTITUTION.—If, pursuant to

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1 a request from a requesting financial regulator under

2 paragraph (1), an originating financial regulator re3 fuses to provide the information described in such

4 paragraph, the requesting financial regulator may

5 not request or compel the production of such informa6 tion from a person engaged in the business of con7 ducting financial activities unless the requesting fi8 nancial regulator first provides notice of such regu9 lator’s intention (to make such request or compel such

10 production) to the originating financial institution

11 and provides the originating financial regulator with

12 reasonable opportunity to respond.

13 (3) DECLARATORY JUDGMENT.—The opportunity

14 to respond described in paragraph (2) shall include

15 the right of the originating financial regulator to

16 bring an action in the United States District Court

17 for the District of Columbia for a declaratory judg18 ment of the rights and privileges of the requesting and

19 originating financial regulators with respect to the

20 information described in paragraph (1), and such re21 lief as may be appropriate.

22 (4) STANDARDS.—In any action brought under

23 paragraph (3), the United States District Court for

24 the District of Columbia shall decide the matter de

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1 cluding any protections or privileges that would be

2 available to the originating financial regulator if such

3 regulator were to intervene in an action brought by

4 the requesting financial regulator to compel the pro5 duction of such information from the person engaged

6 in the business of conducting financial activity re7 ferred to in paragraph (1).

8 (5) PROHIBITION ON REQUESTING INFORMATION

9 WHILE ACTION IS PENDING.—While any action under

10 paragraph (3) is pending with respect to any infor11 mation described in paragraph (1), the requesting fi12 nancial regulator may not make any request for such

13 information from any person engaged in the business

14 of conducting financial activity.

15 (6) RULE OF CONSTRUCTION.—No provision of

16 this subsection may be construed as creating any new

17 authority for any financial regulator to request or

18 compel the production of any information from any

19 person engaged in the business of conducting finan20 cial activities.

21 (l) NO WAIVER OF ANY PRIVILEGE OF ANY OTHER

22 PARTY.—No provision of this Act shall provide a financial

23 regulator with any new authority to disclose information

24 in contravention of applicable law governing disclosure of

25 information.

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1 SEC. 112. CONFIDENTIALITY OF INFORMATION.

2 (a) IN GENERAL.—

3 (1) FINANCIAL REGULATORS.—Except as other4 wise provided in this section or section 111, any re5 quirement under Federal or State law regarding the

6 privacy or confidentiality of any information or ma7 terial in the possession of any participant, and any

8 privilege arising under Federal or State law (includ9 ing the rules of any Federal or State court) with re10 spect to such information or material, shall continue

11 to apply to such information or material after the in12 formation or material has been disclosed through the

13 network to another participant or, if subtitle B has

14 taken effect, the Subcommittee.

15 (2) CERTAIN INSURANCE INFORMATION.—Except

16 as otherwise provided in this section or section 111,

17 any requirement under Federal or State law regard18 ing the privacy or confidentiality of any information

19 or material in the possession of the National Associa20 tion of Insurance Commissioners, or any member or

21 affiliate of the Association, and any privilege arising

22 under Federal or State law (including the rules of

23 any Federal or State court) with respect to such in24 formation or material, shall continue to apply to such

25 information or material after the information has

26 been disclosed to the Association, or any other member

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1 or affiliate of the Association, through the computer

2 databases maintained by the Association.

3 (3) NONAPPLICABILITY OF CERTAIN REQUIRE4 MENTS.—Information or material that is subject to a

5 privilege or confidentiality under any other para6 graph of this subsection shall not be subject to—

7 (A) disclosure under any Federal or State

8 law governing the disclosure to the public of in9 formation held by an officer or an agency of the

10 Federal Government or the respective State; or

11 (B) subpoena or discovery, or admission

12 into evidence, in any private civil action or ad13 ministrative process,

14 unless with respect to any privilege held by a partici15 pant with respect to such information or material, the

16 participant waives, in whole or in part, in the discre17 tion of the participant, such privilege.

18 (b) PREEMPTION OF STATE LAW.—Any State law, in19 cluding any State open record law, relating to the disclosure

20 of confidential supervisory information or any information

21 or material to which subsection (a) applies that is incon22 sistent with any provision of section 111 or subsection (a)

23 of this section shall be superseded by the requirements of

24 such provision to the extent State law provides less con25 fidentiality or a weaker privilege.

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1 (c) DUTY OF FINANCIAL REGULATOR TO MAINTAIN

2 CONFIDENTIALITY.—A participant may not receive,

3 download, copy, or otherwise maintain any information or

4 material from any other member of or liaison to the Sub5 committee through the network unless—

6 (1) the participant maintains a system that en7 ables the participant to maintain full compliance

8 with the requirements of sections 100, 102, and 111

9 and this section, with respect to such information and

10 material; and

11 (2) if and to the extent required by the guidelines

12 established under sections 100 and 102, a record is

13 maintained of each attempt to access such informa14 tion and material, and the identity of the person

15 making the attempt, in order to prevent evasions of

16 such requirements.

17 SEC. 113. LIABILITY PROVISIONS.

18 (a) NO LIABILITY FOR GOOD FAITH DISCLOSURES.—

19 Any financial regulator, and any officer or employee of any

20 financial regulator, shall not be subject to any civil action

21 or proceeding for monetary damages by reason of the good

22 faith action or omission of any officer or employee, while

23 acting within the scope of office or employment, relating

24 to collecting, furnishing, or disseminating regulatory or su25 pervisory information concerning persons engaged in the

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1 business of conducting financial activities, to or from an2 other financial regulator, whether directly or through the

3 network.

4 (b) CRIMINAL LIABILITY FOR INTENTIONAL UNLAWFUL

5 DISCLOSURES.—

6 (1) IN GENERAL.—It shall be unlawful to will7 fully disclose to any person any information con8 cerning any person engaged in the business of con9 ducting financial activities knowing the disclosure to

10 be in violation of any provision of this title—

11 (A) requiring the confidentiality of such in12 formation; or

13 (B) establishing a privilege from disclosure

14 for such information that has not been waived by

15 the relevant financial regulator.

16 (2) PENALTY.—Notwithstanding section 3571 of

17 title 18, United States Code, any person who violates

18 paragraph (1) shall be fined an amount not to exceed

19 the greater of $100,000 or the amount of the actual

20 damages sustained by any person as a result of such

21 violation, or imprisoned not more than 5 years, or

22 both.

23 (c) FULL, CONTINUED PROTECTION UNDER THE SO24 CALLED ‘‘FEDERAL TORT CLAIMS ACT’’.—No provision of

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1 tection provided for any Federal agency, or any officer or

2 employee of any Federal agency, under section 2679 of title

3 28, United States Code.

4 (d) PROTECTION APPLIED TO THE SUBCOMMITTEE.—

5 For the purposes of this section, the term ‘‘financial regu6 lator’’ includes the Subcommittee after subtitle B has taken

7 effect.

8 SEC. 114. AUTHORIZATION FOR IDENTIFICATION AND

9 CRIMINAL BACKGROUND CHECK.

10 (a) SHARING OF CRIMINAL RECORDS.—

11 (1) ATTORNEY GENERAL AUTHORIZATION.—

12 Upon receiving a request from a financial regulator,

13 the Attorney General shall—

14 (A) search the records of the Criminal Jus15 tice Information Services Division of the Federal

16 Bureau of Investigation, and any other similar

17 database over which the Attorney General has

18 authority and deems appropriate, for any crimi19 nal background records (including wanted per20 sons information) corresponding to the identi21 fication information provided under subsection

22 (b); and

23 (B) either—

24 (i) shall provide any such records to

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1 lator, which shall provide the relevant infor2 mation to such regulator; or

3 (ii) may provide such records directly

4 to the financial regulator if the Attorney

5 General limits such provision of records to

6 relevant information.

7 (2) AUTHORIZED AGENT DEFINED.—For pur8 poses of this section, the term ‘‘authorized agent’’

9 means—

10 (A) any agent which has been recognized by

11 the Attorney General for such purpose and au12 thorized by at least 3 other financial regulators

13 to receive such records and perform the informa14 tion sharing requirements of paragraph (3);

15 (B) the State attorney general for the State

16 in which the regulator is primarily located, and

17 (C) any law enforcement designee of the At18 torney General or such State attorney general.

19 (3) INFORMATION SHARED.—

20 (A) IN GENERAL.—The authorized agent

21 shall provide to the requesting financial regu22 lator only any records that are relevant informa23 tion.

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1 (B) RELEVANT INFORMATION DEFINED.—

2 For purposes of this section, the term ‘‘relevant

3 information’’ means any of the following records:

4 (i) All felony convictions.

5 (ii) All misdemeanor convictions

6 involving—

7 (I) violation of a law involving fi8 nancial activities;

9 (II) dishonesty or breach of trust,

10 within the meaning of section 1033 of

11 title 18, United States Code, including

12 taking, withholding, misappropriating,

13 or converting money or property;

14 (III) failure to comply with child

15 support obligations;

16 (IV) failure to pay taxes; and

17 (V) domestic violence, child abuse,

18 or a crime of violence.

19 (C) CRIME OF VIOLENCE DEFINED.—For

20 purposes of subparagraph (B)(ii)(V), the term

21 ‘‘crime of violence’’ means a burglary of a dwell22 ing and a criminal offense that has as an ele23 ment, the use or attempted use of physical force,

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1 on, against an individual, including committing

2 or attempting to commit murder, manslaughter,

3 kidnapping, aggravated assault, forcible sex of4 fenses, robbery, arson, extortion, and extortionate

5 extension of credit.

6 (4) STATE UNIFORM OR RECIPROCITY LAWS RE7 QUIREMENT.—

8 (A) IN GENERAL.—The Attorney General

9 may not provide any records under this sub10 section to an insurance regulator of a State, or

11 agent of such regulator, if such State does not

12 have in effect uniform or reciprocity laws and

13 regulations governing the licensure of individuals

14 and entities authorized to sell and solicit the

15 purchase of insurance within the State as set

16 forth in section 321 of P.L. 106-102.

17 (B) DETERMINATION OF RECIPROCITY.—

18 The determination of whether or not a State has

19 uniform or reciprocity laws or regulations in ef20 fect for purposes of subparagraph (A) shall be

21 made by the Attorney General, with the advice

22 and counsel of the National Association of Insur23 ance Commissioners.

24 (C) EXCEPTION UNDER CERTAIN CIR25 CUMSTANCES.—Notwithstanding subparagraph

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1 (B), the Attorney General may provide records

2 under this section to an insurance regulator of a

3 State, or agent of such regulator, on the basis of

4 a specific determination by the National Associa5 tion of Insurance Commissioners that such State

6 has in effect uniform or reciprocity laws and

7 regulations referred to in subparagraph (A) if—

8 (i) a determination by the Attorney

9 General under subparagraph (B) is pend10 ing; or

11 (ii) the Attorney General considers

12 whether such State has in effect such uni13 form or reciprocity laws or regulations and

14 fails to make a determination, unless the

15 Attorney General subsequently determines

16 that such State does not have in effect uni17 form or reciprocity laws or regulations.

18 (b) FORM OF REQUEST.—A request under subsection

19 (a) shall include a copy of any necessary identification in20 formation required by the Attorney General, such as the

21 name and fingerprints of the person about whom the record

22 is requested and a statement signed by the person acknowl23 edging that the regulator (or such regulator’s designated

24 agent under subsection (g)(1)) may request the search.

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1 (c) LIMITATION ON PERMISSIBLE USES OF INFORMA2 TION.—Information obtained under this section may—

3 (1) be used only for regulatory or law enforce4 ment purposes; and

5 (2) be disclosed—

6 (A) only to other financial regulators or

7 Federal or State law enforcement agencies; and

8 (B) only if the recipient agrees to—

9 (i) maintain the confidentiality of such

10 information; and

11 (ii) limit the use of such information

12 to appropriate regulatory and law enforce13 ment purposes.

14 (d) PENALTY FOR IMPROPER USE.—

15 (1) IN GENERAL.—Whoever uses any information

16 obtained under this section knowingly and willfully

17 for an unauthorized purpose shall be fined under title

18 18, United States Code, imprisoned for not more than

19 2 years, or both.

20 (2) ADDITIONAL PENALTIES AND WAIVERS.—

21 (A) IN GENERAL.—Any authorized agent

22 who violates paragraph (1), or any individual

23 who directs such agent to violate such para24 graph, shall be barred from engaging in or reguVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00071 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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1 lating any activities related to the business of in2 surance.

3 (B) WAIVER AUTHORIZED.—The Attorney

4 General, in the discretion of the Attorney Gen5 eral, may waive the bar in subparagraph (A), as

6 appropriate.

7 (e) RELIANCE ON INFORMATION.—A financial regu8 lator (or such regulator’s designated agent under subsection

9 (g)(1)) who reasonably relies on information provided

10 under this section shall not be liable in any action for using

11 information as permitted under this section in good faith.

12 (f) CLARIFICATION OF SECTION 1033.—With respect to

13 any action brought under section 1033(e)(1)(B) of title 18,

14 United States Code, no person engaged in the business of

15 conducting financial activities shall be subject to any pen16 alty resulting from such section if the individual who the

17 person permitted to engage in the business of insurance is

18 licensed, or approved (as part of an application or other19 wise), by a State insurance regulator that performs crimi20 nal background checks under this section, unless such person

21 knows that the individual is in violation of section

22 1033(e)(1)(A) of such title.

23 (g) DESIGNATION OF AGENT.—

24 (1) IN GENERAL.—A financial regulator may

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1 changes of information under this section between or

2 among the financial regulator, the Attorney General,

3 and any other authorized agent.

4 (2) SENSE OF CONGRESS REGARDING AGENTS OF

5 INSURANCE REGULATORS.—It is the sense of the Con6 gress that—

7 (A) each State insurance commissioner

8 should designate the National Association of In9 surance Commissioners as an agent under para10 graph (1);

11 (B) persons engaged in the business of in12 surance should be able to use the National Asso13 ciation of Insurance Commissioners to facilitate

14 obtaining fingerprints and supplying identifica15 tion information for use in background checks

16 under this section on a multijurisdictional basis;

17 (C) the National Association of Insurance

18 Commissioners should maintain a database to

19 obtain records under this section for use by State

20 insurance commissioners to reduce multiple or

21 duplicative fingerprinting requirements and

22 criminal background checks, except that any such

23 record shall not be maintained for more than 1

24 year without performing a new background check

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1 to determine if the criminal background record

2 has changed;

3 (D) other financial regulators that require

4 fingerprints and criminal background checks

5 should similarly coordinate efforts to reduce du6 plication for persons engaged in the business of

7 conducting multiple types of financial activities;

8 and

9 (E) the National Association of Insurance

10 Commissioners, and other financial regulators

11 that use this section, should consult with the At12 torney General to consider the feasibility of de13 veloping an on-going notification system that

14 would allow the Attorney General to notify such

15 Association when a licensed or approved insur16 ance professional is convicted of a relevant

17 crime.

18 (h) FEES.—The Attorney General may charge a rea19 sonable fee for the provision of information under this sec20 tion.

21 (i) RULE OF CONSTRUCTION.—This section shall not—

22 (1) provide independent authorization for a fi23 nancial regulator to require fingerprinting as a part

24 of a licensure or other application;

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1 (2) require a financial regulator to perform

2 criminal background checks under this section; or

3 (3) supersede or otherwise limit any other au4 thority that allows access to criminal background

5 records.

6 (j) REGULATIONS.—The Attorney General may pre7 scribe regulations to carry out this section.

8 SEC. 115. DEFINITIONS.

9 For purposes of this title, the following definitions

10 shall apply:

11 (1) FEDERAL BANKING AGENCY.—The term

12 ‘‘Federal banking agency’’ has the same meaning as

13 given in section 3(z) of the Federal Deposit Insurance

14 Act.

15 (2) FINANCIAL ACTIVITIES.—

16 (A) IN GENERAL.—The term ‘‘financial

17 activities’’—

18 (i) means banking activities (including

19 the ownership of a bank), securities activi20 ties, insurance activities, or commodities

21 activities; and

22 (ii) includes all activities that are fi23 nancial in nature or are incidental to a fi24 nancial activity (as defined under section

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1 4(k) of the Bank Holding Company Act of

2 1956).

3 (B) RULE OF CONSTRUCTION.—Subpara4 graph (A) shall not be construed as creating any

5 inference, including any negative inference, con6 cerning the types or extent of activities that are

7 appropriately recognized as activities that are fi8 nancial in nature, or are incidental to a finan9 cial activity, for purposes of section 4 of the

10 Bank Holding Company Act of 1956.

11 (3) FINANCIAL REGULATOR.—The term ‘‘finan12 cial regulator’’ means—

13 (A) each Federal banking agency;

14 (B) the Securities and Exchange Commis15 sion;

16 (C) the Commodity Futures Trading Com17 mission;

18 (D) the National Credit Union Administra19 tion;

20 (E) the Farm Credit Administration;

21 (F) the Federal Housing Finance Board;

22 (G) the Federal Trade Commission, to the

23 extent the Commission has jurisdiction over fi24 nancial activities being conducted by a person

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1 engaged in the business of conducting financial

2 activities;

3 (H) the Secretary of the Treasury, to the ex4 tent the Secretary has jurisdiction over financial

5 activities being conducted by a person engaged

6 in the business of conducting financial activities

7 (I) the Office of Federal Housing Enterprise

8 Oversight of the Department of Housing and

9 Urban Development;

10 (J) the Appraisal Subcommittee of the Fi11 nancial Institutions Examination Council;

12 (K) any State bank supervisor (as defined

13 in section 3(r) of the Federal Deposit Insurance

14 Act), including the Conference of State Bank Su15 pervisors only to the extent such conference is

16 acting as an agent of, and is subject to the over17 sight of, any such State bank supervisor;

18 (L) any State savings association super19 visor, including the American Council of State

20 Savings Supervisors only to the extent such con21 ference is acting as an agent of, and is subject

22 to the oversight of, any such State savings asso23 ciation supervisor;

24 (M) any State insurance commissioner, in25 cluding the National Association of Insurance

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1 Commissioners only to the extent such associa2 tion is acting as the agent of, and is subject to

3 the oversight of, any such insurance commis4 sioner;

5 (N) any State securities administrator, in6 cluding the North American Securities Adminis7 trators Association only to the extent such asso8 ciation is acting as the agent of, and is subject

9 to the oversight of, any such securities adminis10 trator;

11 (O) any State credit union supervisor, in12 cluding the National Association of State Credit

13 Union Supervisors only to the extent such asso14 ciation is acting as the agent of, and is subject

15 to the oversight of, any such credit union super16 visor;

17 (P) the National Association of Securities

18 Dealers, only to the extent that—

19 (i) such association is acting in con20 nection with the financial services industry;

21 and

22 (ii) the association and the relevant ac23 tions are subject to the oversight of the Secu24 rities and Exchange Commission;

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1 (Q) the National Futures Association, only

2 to the extent that—

3 (i) such association is acting in con4 nection with the financial services industry;

5 and

6 (ii) the association and the relevant ac7 tions are subject to the oversight of the Com8 modity Futures Trading Commission or the

9 Securities and Exchange Commission; and

10 (R) any other self-regulatory organization

11 that engages in or coordinates regulatory and su12 pervisory activities, with respect to any person

13 engaged in the business of conducting financial

14 activities, and is subject to the oversight of the

15 Securities and Exchange Commission or the

16 Commodity Futures Trading Commission, but

17 only to the extent that the organization engages

18 in such activities and is subject to such oversight.

19 (4) FOREIGN FINANCIAL REGULATOR.—The term

20 ‘‘foreign financial regulator’’ means any agency, enti21 ty, or body (including a self-regulatory organization)

22 that is empowered by the laws of a foreign country

23 to supervise and regulate persons engaged in the busi24 ness of conducting financial activities, but only to the

25 extent of such supervisory and regulatory activities.

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1 (5) PARTICIPANT.—The term ‘‘participant’’

2 means any entity described in section 101 as being

3 represented by a member of, or a liaison to, the Sub4 committee (regardless of whether subtitle B has taken

5 effect) but only to the extent the regulator provides or

6 obtains access to information through the network.

7 (6) PERSON.—The term ‘‘person’’ includes any

8 financial regulator.

9 (7) PERSON ENGAGED IN THE BUSINESS OF CON10 DUCTING FINANCIAL ACTIVITIES.—The term ‘‘person

11 engaged in the business of conducting financial ac12 tivities’’ includes, to the extent appropriate under the

13 laws applicable to the jurisdiction of a financial regu14 lator over such person—

15 (A) any director, officer, employee, or con16 trolling stockholder of, or agent for, any such

17 person;

18 (B) any other person who has filed or is re19 quired to file a change-in-control notice with the

20 appropriate financial regulator before acquiring

21 control of such person; and

22 (C) any person who has sought approval

23 from a financial regulator to engage in the busi24 ness of conducting financial activities, or that

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1 was engaged in such business and subject to the

2 jurisdiction of a financial regulator; and

3 (D) any shareholder, consultant, joint ven4 ture partner, and any other person, including an

5 independent contractor, as determined by the ap6 propriate financial regulator (by regulation or

7 case-by-case) who participates in the conduct of

8 the affairs of such person.

9 (8) STATE INSURANCE COMMISSIONER.—The

10 term ‘‘State insurance commissioner’’ means any offi11 cer, agency, or other entity of any State which has

12 primary regulatory authority over the business of in13 surance and over any person engaged in the business

14 of insurance to the extent of such activities, in such

15 State.

16 (9) STATE SECURITIES ADMINISTRATOR.—The

17 term ‘‘State securities administrator’’ means the secu18 rities commission (or any agency or office performing

19 like functions) of any State.

20 SEC. 116. TECHNICAL AND CONFORMING AMENDMENTS TO

21 OTHER ACTS.

22 (a) Subsection (b) of section 552a of title 5, United

23 States Code, is amended—

24 (1) by striking ‘‘and’’ at the end of paragraph

25 (11);

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1 (2) by striking the period at the end of para2 graph (12) and inserting ‘‘; or’’; and

3 (3) by inserting after paragraph (12) the fol4 lowing new paragraph:

5 ‘‘(13) for recordkeeping, licensing, and other reg6 ulatory and law enforcement purposes in accordance

7 with title I of the Financial Services Antifraud Net8 work Act of 2001—

9 ‘‘(A) through a network or name-relation10 ship index maintained under such title; or

11 ‘‘(B) to a multistate database maintained

12 by the National Association of Insurance Com13 missioners and any subsidiary or affiliate of

14 such association, subject to the requirements of

15 such title.’’.

16 (b) Section 1113 of the Financial Institutions Regu17 latory and Interest Rate Control Act of 1978 (12 U.S.C.

18 3413) is amended by adding at the end the following new

19 subsection:

20 ‘‘(r) This title shall not apply to disclosure by a finan21 cial regulator of information pursuant to subtitle A or B

22 of the Financial Services Antifraud Network Act of 2001

23 to the extent the disclosure is made in accordance with the

24 requirements of such Act.’’.

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1 (c) Section 602 of the Consumer Credit Protection Act

2 (15 U.S.C. 1681) is amended by adding at the end the fol3 lowing new subsection:

4 ‘‘(c) This title shall not apply to a communication be5 tween participants, as defined in the Financial Services

6 Antifraud Network Act of 2001, to the extent the commu7 nication is made in accordance with such Act.’’.

8 SEC. 117. AUDIT OF STATE INSURANCE REGULATORS.

9 (a) IN GENERAL.—At the request of the Congress, the

10 Comptroller General shall audit a State insurance regulator

11 or any person who maintains information on behalf of such

12 regulator.

13 (b) LIMITATIONS ON DISCLOSURE OF INFORMATION.—

14 Except as provided in this subsection, an officer or employee

15 of the General Accounting Office may not disclose informa16 tion identifying an open insurance company or a customer

17 of an open or closed insurance company. The Comptroller

18 General may disclose information related to the affairs of

19 a closed insurance company only if the Comptroller General

20 believes the customer had a controlling influence in the

21 management of the closed insurance company or was re22 lated to or affiliated with a person or group having a con23 trolling influence.

24 (c) COORDINATION WITH STATE REGULATOR.—An of25 ficer or employee of the Office may discuss a customer or

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1 insurance company with an official of a State insurance

2 regulator and may report an apparent criminal violation

3 to an appropriate law enforcement authority of the United

4 States Government or a State.

5 (d) CONGRESSIONAL OVERSIGHT.—This subsection

6 shall not be construed as authorizing an officer or employee

7 of a State insurance regulator to withhold information from

8 a committee of the Congress authorized to have the informa9 tion.

10 (e) ADMINISTRATIVE ASPECTS OF AUDIT.—

11 (1) IN GENERAL.—To carry out this section, all

12 records and property of or used by a State insurance

13 regulator, including samples of reports of examina14 tions of an insurance company the Comptroller Gen15 eral considers statistically meaningful and

16 workpapers and correspondence related to the reports

17 shall be made available to the Comptroller General.

18 The Comptroller General shall give a State insurance

19 regulator a current list of officers and employees to

20 whom, with proper identification, records and prop21 erty may be made available, and who may make

22 notes or copies necessary to carry out an audit.

23 (2) PREVENTION OF UNAUTHORIZED ACCESS.—

24 The Comptroller General shall prevent unauthorized

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1 surance regulator that the Comptroller General ob2 tains during an audit.

3 (f) CONFIDENTIALITY.—

4 (1) IN GENERAL.—The Comptroller General shall

5 maintain the same level of confidentiality for a record

6 made available under this section as is required of the

7 head of the State insurance regulator from which it

8 is obtained.

9 (2) PREVENTION OF INVASION OF PERSONAL PRI10 VACY.—The Comptroller General shall keep informa11 tion described in section 552(b)(6) of title 5, United

12 States Code, that the Comptroller General obtains in

13 a way that prevents unwarranted invasions of per14 sonal privacy.

15 (3) AVAILABILITY OF INFORMATION.—Except as

16 provided in subsection (b), no provision of this section

17 shall be construed as authorizing any information to

18 be withheld from the Congress.

19 (g) AVAILABILITY OF INFORMATION AND INSPECTION

20 OF RECORDS.—The right of access of the Comptroller Gen21 eral to information under this section shall be enforceable

22 under section 716 of title 31, United States Code.

23 (h) DEFINITIONS.—For purposes of this section, the

24 following definitions shall apply:

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1 (1) STATE INSURANCE REGULATOR DEFINED.—

2 The term ‘‘State insurance regulator’’ means the

3 principal insurance regulatory authority of a State,

4 the District of Columbia, any territory of the United

5 States, Puerto Rico, Guam, American Samoa, the

6 Trust Territory of the Pacific Islands, the Virgin Is7 lands, and the Northern Mariana Islands.

8 (2) INSURANCE COMPANY.—The term ‘‘insurance

9 company’’ includes any person engaged in the busi10 ness of insurance to the extent of such activities.

11 TITLE II—SECURITIES INDUSTRY

12 COORDINATION

13 Subtitle A—Disciplinary

14 Information

15 SEC. 201. INVESTMENT ADVISERS ACT OF 1940.

16 Section 204 of the Investment Advisers Act of 1940 (15

17 U.S.C. 80b–4) is amended—

18 (1) by striking ‘‘Every investment’’ and insert19 ing the following:

20 ‘‘(a) IN GENERAL.—Every investment’’; and

21 (2) by adding at the end the following:

22 ‘‘(b) FILING DEPOSITORIES.—The Commission, by

23 rule, may require an investment adviser—

24 ‘‘(1) to file with the Commission any fee, appli25 cation, report, or notice required to be filed by this

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1 title or the rules issued under this title through any

2 entity designated by the Commission for that purpose;

3 and

4 ‘‘(2) to pay the reasonable costs associated with

5 such filing and the establishment and maintenance of

6 the systems required by subsection (c).

7 ‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFORMA8 TION.—

9 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO

10 INQUIRIES.—The Commission shall require the entity

11 designated by the Commission under subsection

12 (b)(1)—

13 ‘‘(A) to establish and maintain a toll-free

14 telephone listing or other readily accessible elec15 tronic process to receive inquiries regarding dis16 ciplinary actions and proceedings and other in17 formation involving investment advisers and

18 persons associated with investment advisers; and

19 ‘‘(B) to respond promptly to such inquiries.

20 ‘‘(2) RECOVERY OF COSTS.—An entity des21 ignated by the Commission under subsection (b)(1)

22 may charge persons, other than individual investors,

23 reasonable fees for responses to inquiries made under

24 paragraph (1).

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1 ‘‘(3) LIMITATION ON LIABILITY.—An entity des2 ignated by the Commission under subsection (b)(1)

3 shall not have any liability to any person for any ac4 tions taken or omitted in good faith under this sub5 section.’’.

6 SEC. 202. SECURITIES EXCHANGE ACT OF 1934.

7 Subsection (i) of section 15A of the Securities Ex8 change Act of 1934 (15 U.S.C. 78o–3) is amended to read

9 as follows:

10 ‘‘(i) OBLIGATION TO MAINTAIN DISCIPLINARY AND

11 OTHER DATA.—

12 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO

13 INQUIRIES.—A registered securities association

14 shall—

15 ‘‘(A) establish and maintain a toll-free tele16 phone listing or other readily accessible elec17 tronic process to receive inquiries regarding dis18 ciplinary actions and proceedings and other in19 formation involving its members and their asso20 ciated persons and regarding disciplinary ac21 tions and proceedings and other information

22 that has been reported to the Central Registra23 tion Depository by any registered national secu24 rities exchange involving its members and their

25 associated persons; and

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1 ‘‘(B) promptly respond to such inquiries.

2 ‘‘(2) RECOVERY OF COSTS.—Such association

3 may charge persons, other than individual investors,

4 reasonable fees for responses to such inquiries.

5 ‘‘(3) LIMITATION ON LIABILITY.—Such an asso6 ciation or exchange shall not have any liability to

7 any person for any actions taken or omitted in good

8 faith under this subsection.’’.

9 Subtitle B—Preventing Migration of

10 Rogue Financial Professionals

11 to the Securities Industry

12 SEC. 211. SECURITIES EXCHANGE ACT OF 1934.

13 (a) BROKERS AND DEALERS.—Section 15(b) of the Se14 curities Exchange Act of 1934 (15 U.S.C. 78o(b)) is

15 amended—

16 (1) in paragraph (4), by striking subparagraphs

17 (F) and (G) and inserting the following:

18 ‘‘(F) is subject to any order of the Commission

19 barring or suspending the right of the person to be as20 sociated with a broker or dealer.

21 ‘‘(G) has been found by a foreign financial regu22 latory authority to have—

23 ‘‘(i) made or caused to be made in any ap24 plication for registration or report required to be

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1 ity, or in any proceeding before a foreign finan2 cial regulatory authority with respect to reg3 istration, any statement that was at the time

4 and in the light of the circumstances under

5 which it was made false or misleading with re6 spect to any material fact, or omitted to state in

7 any such application, report, or proceeding any

8 material fact that is required to be stated there9 in;

10 ‘‘(ii) violated any foreign statute or regula11 tion regarding securities, banking, thrift activi12 ties, credit union activities, insurance, or con13 tracts of sale of a commodity for future delivery,

14 traded on or subject to the rules of a contract

15 market or any board of trade; or

16 ‘‘(iii) aided, abetted, counseled, commanded,

17 induced, or procured the violation by any other

18 person of any provision of any statutory provi19 sions enacted by a foreign government, or rules

20 or regulations thereunder, regarding securities,

21 banking, thrift activities, credit union activities,

22 insurance, or contracts of sale of a commodity

23 for future delivery traded on or subject to the

24 rules of a contract market or any board of trade,

25 or to have failed reasonably to supervise, with a

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1 view to preventing violations of such statutory

2 provisions, rules, and regulations, another person

3 who commits such a violation, if such other per4 son is subject to his supervision.

5 ‘‘(H) is subject to any final order of a State se6 curities commission (or any agency or officer per7 forming like functions), State authority that super8 vises or examines banks, thrifts, or credit unions,

9 State insurance commission (or any agency or office

10 performing like functions), an appropriate Federal

11 banking agency (as defined in section 3 of the Federal

12 Deposit Insurance Act (12 U.S.C. 1813(q)), or the

13 National Credit Union Administration, that—

14 ‘‘(i) bars such person from association with

15 an entity regulated by such commission, author16 ity, agency, or officer, or from engaging in the

17 business of securities, insurance, banking, thrift

18 activities, or credit union activities; or

19 ‘‘(ii) constitutes a final order based on vio20 lations of any laws or regulations that prohibit

21 fraudulent, manipulative, or deceptive conduct.’’;

22 and

23 (2) in paragraph (6)(A)(i), by striking ‘‘or omis24 sion enumerated in subparagraph (A), (D), (E), or

25 (G)’’ and inserting ‘‘, or is subject to an order or

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1 finding, enumerated in subparagraph (A), (D), (E),

2 (G), or (H)’’.

3 (b) MUNICIPAL SECURITIES BROKERS AND DEAL4 ERS.—Section 15B(c) of the Securities Exchange Act of

5 1934 (15 U.S.C. 78o–4(c)) is amended—

6 (1) in paragraph (2)—

7 (A) by striking ‘‘or omission enumerated in

8 subparagraph (A), (D), (E), or (G)’’ and insert9 ing ‘‘, or is subject to an order or finding, enu10 merated in subparagraph (A), (D), (E), (G), or

11 (H)’’; and

12 (B) by striking ‘‘ten’’ and inserting ‘‘10’’;

13 and

14 (2) in paragraph (4) by striking ‘‘or omission

15 enumerated in subparagraph (A), (D), (E), or (G)’’

16 and inserting ‘‘, or is subject to an order or finding,

17 enumerated in subparagraph (A), (D), (E), (G), or

18 (H)’’.

19 (c) GOVERNMENT SECURITIES BROKERS AND DEAL20 ERS.—Section 15C(c)(1) of the Securities Exchange Act of

21 1934 (15 U.S.C. 78o–5(c)(1)) is amended—

22 (1) in subparagraph (A), by striking ‘‘or omis23 sion enumerated in subparagraph (A), (D), (E), or

24 (G)’’ and inserting ‘‘, or is subject to an order or

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1 finding, enumerated in subparagraph (A), (D), (E),

2 (G), or (H)’’; and

3 (2) in subparagraph (C), by striking ‘‘or omis4 sion enumerated in subparagraph (A), (D), (E), or

5 (G)’’ and inserting ‘‘, or is subject to an order or

6 finding, enumerated in subparagraph (A), (D), (E),

7 (G), or (H)’’.

8 (d) CLEARANCE AND SETTLEMENT.—Section 17A(c) of

9 the Securities Exchange Act of 1934 (15 U.S.C. 78q–1(c))

10 is amended—

11 (1) in paragraph (3)(A), by striking ‘‘enumer12 ated in subparagraph (A), (D), (E), or (G)’’ and in13 serting ‘‘, or is subject to an order or finding, enu14 merated in subparagraph (A), (D), (E), (G), or (H)’’;

15 and

16 (2) in paragraph (4)(C)—

17 (A) by striking ‘‘enumerated in subpara18 graph (A), (D), (E), or (G)’’ and inserting ‘‘, or

19 is subject to an order or finding, enumerated in

20 subparagraph (A), (D), (E), (G), or (H)’’; and

21 (B) by striking ‘‘ten years’’ and inserting

22 ‘‘10 years’’.

23 (e) DEFINITION OF STATUTORY DISQUALIFICATION.—

24 Section 3(a)(39)(F) of the Securities Exchange Act of 1934

25 (15 U.S.C. 78c(a)(39)(F)) is amended by striking ‘‘has comVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00093 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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1 mitted or omitted any act enumerated in subparagraph

2 (D), (E), or (G)’’ and inserting ‘‘has committed or omitted

3 any act, or is subject to an order or finding, enumerated

4 in subparagraph (D), (E), (G), or (H)’’.

5 SEC. 212. INVESTMENT ADVISERS ACT OF 1940.

6 (a) AUTHORITY TO DENY OR REVOKE REGISTRATION

7 BASED ON STATE (AND OTHER GOVERNMENTAL) ADMINIS8 TRATIVE ACTIONS.—Section 203(e) of the Investment Advis9 ers Act of 1940 (15 U.S.C. 80b–3(e)) is amended by striking

10 paragraphs (7) and (8) and inserting the following:

11 ‘‘(7) is subject to any order of the Commission

12 barring or suspending the right of the person to be as13 sociated with an investment adviser.

14 ‘‘(8) has been found by a foreign financial regu15 latory authority to have—

16 ‘‘(A) made or caused to be made in any ap17 plication for registration or report required to be

18 filed with a foreign securities authority, or in

19 any proceeding before a foreign securities author20 ity with respect to registration, any statement

21 that was at the time and in light of the cir22 cumstances under which it was made false or

23 misleading with respect to any material fact, or

24 has omitted to state in any such application, reVerDate 11-MAY-2000 04:49 Oct 17, 2001 Jkt 075729 PO 00000 Frm 00094 Fmt 6659 Sfmt 6601 E:\HR\OC\HR192P2.XXX pfrm11 PsN: HR192P2
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1 port, or proceeding any material fact that is re2 quired to be stated therein;

3 ‘‘(B) violated any foreign statute or regula4 tion regarding securities, banking, thrift activi5 ties, credit union activities, insurance, or con6 tracts of sale of a commodity for future delivery

7 traded on or subject to the rules of a contract

8 market or any board of trade;

9 ‘‘(C) aided, abetted, counseled, commanded,

10 induced, or procured the violation by any other

11 person of any foreign statute or regulation re12 garding securities, banking, thrift activities,

13 credit union activities, insurance, or contracts of

14 sale of a commodity for future delivery traded on

15 or subject to the rules of a contract market or

16 any board of trade, or to have failed reasonably

17 to supervise, with a view to preventing violations

18 of statutory provisions, and rules and regula19 tions promulgated thereunder, another person

20 who commits such a violation, if such other per21 son is subject to his supervision.

22 ‘‘(9) is subject to any final order of a State secu23 rities commission (or any agency or officer per24 forming like functions), State authority that super25 vises or examines banks, thrifts, or credit unions,

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84

1 State insurance commission (or any agency or office

2 performing like functions), an appropriate Federal

3 banking agency (as defined in section 3 of the Federal

4 Deposit Insurance Act (12 U.S.C. 1813(q)), or the

5 National Credit Union Administration, that—

6 ‘‘(A) bars such person from association with

7 an entity regulated by such commission, author8 ity, agency, or officer, or from engaging in the

9 business of securities, insurance, banking, thrift

10 activities, or credit union activities; or

11 ‘‘(B) constitutes a final order based on vio12 lations of any laws or regulations that prohibit

13 fraudulent, manipulative, or deceptive conduct.’’.

14 (b) BARS ON FELONS ASSOCIATED WITH INVESTMENT

15 ADVISERS.—Section 203(f) of the Investment Advisers Act

16 of 1940 (15 U.S.C. 80b–3(f)) is amended—

17 (A) by striking ‘‘or (8)’’ and inserting ‘‘(8),

18 or (9)’’; and

19 (B) by inserting ‘‘or (3)’’ after ‘‘paragraph

20 (2)’’.

Chairman SENSENBRENNER. Without objection, the bill will be

considered as read and open for amendment at any point. I recognize myself for 5 minutes.

The version of H.R. 1408 before you was adopted by the Committee on Financial Services by voice vote on June 27th of this

97

year, and the Committee on the Judiciary has received a sequential

referral of sections 100, 101, 102, 105, 111, 113, and 114, which

will expire this Friday. In general, this referral contains sections

of H.R. 1408 that deal with the Federal courts or law enforcement

agencies.

The bill requires financial regulators to formulate and implement

an information sharing network. If the regulators fail to do so, a

subcommittee will be formed by representatives of each financial

services industry to formulate and implement a similar network.

When Congress recently adopted the Gramm-Leach-Bliley bill requiring regulators to modernize the regulation of the financial service industry, H.R. 1408 will give financial regulators the tools to

complete the task. Currently our country loses in excess of $100

billion each year from financial services fraud. H.R. 1408 will help

regulators prevent these losses, which will ultimately benefit American consumers and businesses.

Also, the bill creates a national standard for confidential information sharing among financial services industries. This will help

Federal, State, and local law enforcement networks track or even

root out the bad actors that burrow into our financial institutions.

Currently regulators share all sorts of information on an ad hoc

basis, with varying safeguards. While many in the industry already

maintain industry-specific databases, it only makes sense to coordinate this information and create a seamless regulatory system,

which is what the bill does.

I would at this time ask unanimous consent that all Members

may include opening statements at this point in the record, and

will specifically recognize Messrs. Conyers and Bachus, who is the

Chairman of the Subcommittee on Financial Services that put this

bill together in the other Committee, when they come in.

[The prepared statement of Mr. Conyers follows:]

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN

First, I would like to thank Chairman Sensenbrenner for taking up this legislation, thereby preserving the Committee’s jurisdiction on this issue.

H.R. 1408, the ‘‘Financial Services Antifraud Network Act of 2001’’ is the result

of a bipartisan effort on the Financial Services Committee, led by our colleagues,

Representatives Waters and Bachus. I support its passage in this Committee.

The bill directs financial regulators to coordinate their computer systems to facilitate the sharing of appropriate antifraud information. The purpose of this is to help

enable the regulators to prevent fraud artists from moving from one sector of the

financial services industry to another, detect fraud patterns early on, and to streamline their antifraud efforts.

H.R. 1408 does not require the creation of any new databases. Rather, it helps

to network existing systems so they can easily communicate with each other.

Importantly, the direction to coordinate information is limited to data on financial

companies and professionals—not consumers.

The bill involves the Attorney General and the Department of Justice in the antifraud effort. Under the bill, DOJ provides relevant criminal background records to

the regulators, and this information must be maintained according to a strict confidentiality protocol.

I understand that there will be an amendment offered to modify the removal provisions of the bill and provide for a declaratory judgment to resolve questions involving confidential supervisory information. I support this common-sense change.

I encourage a ‘‘yes’’ vote on H.R. 1408.

[The prepared statement of Ms. Jackson Lee follows:]

98

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS

Thank you Chairman Sensenbrenner and Ranking Member Conyers for holding

this Judiciary Committee markup today.

The bill before us today, HR 1408, represents a delicate bi-partisan compromise

between members of the House Financial Services Committee. The bill would effectively direct financial regulators to coordinate their computer systems to facilitate

the sharing of appropriate antifraud information. Currently, Federal and State financial regulators and self-regulating financial organizations each use a different

system, thus complicating the sharing of information to keep track of each other’s

antifraud efforts. HR 1408 would coordinate regulators’ computer protocols so that

their systems can communicate and share critical antifraud information on a comprehensive basis. Importantly, HR 1408 would not create any new database or collecting mechanism, but would instead utilize existing systems to better facilitate the

responsible sharing of vital information.

Despite the delicate compromise, the Department of Justice has indicated several

concerns that may be raised today. First, section 111(b) of HR 1408, could be clarified to reflect that law enforcement is not precluded from accessing confidential supervisory information. This can be done by adding a new subparagraph

111(b)(2)(A)(iii), which would state that ‘‘No provision of paragraph (1) shall be construed as preventing access to confidential supervisory information by law enforcement agencies.’’

Next, section 114(f), could be stricken because the term ‘‘knows’’, which may be

inconsistent with the term ‘‘willfully’’ in 18 USC 1033(e)(1)(B), could create confusion in prosecutions concerning the burden of proof to be put forth by the government.

Finally, subparagraph 114(g)(2)(C) might be stricken because the database that

the National Association of Insurance Commissioners is asked to maintain would

not be subject to accuracy and updating requirements, perhaps leading to inaccurate

and outdated information.

The concerns of the Department of Justice are well taken, particularly in light of

the recent need for information sharing among our law enforcement and investigative agencies. The recent spirit of bi-partisanship that has been fostered in this

Committee by Chairman Sensenbrenner and ranking Member Conyers with respect

to the recent Anti-Terrorism legislation has addressed many of these concerns and

continues to drive us forward in answering the call of our law enforcement and security needs.

As we all know, this greatly needed anti-terrorism legislation was favorably reported out of this Committee last week in an historic 36–0 vote which truly transcended party lines at a time when we as a Nation most needed to come together.

I truly hope that this Committee can continue to foster that same spirit of bi-partisanship. So while we must strongly consider the Justice Department’s unanswered

provisions in the bill before us today, we must take care to avoid tipping the delicate

balance which has been struck on this important legislation.

Mr. Chairman, I offer these concerns and hope that my colleagues will contemplate their importance during today’s markup. Thank you.

At this point in time, are there any amendments? The gentleman

from North Carolina.

Mr. COBLE. Thank you, Mr. Chairman. You pretty well stated it.

I will make a brief clarifying statement.

As you point out, I think you implied the Financial Services

Committee has approved or indicated approval of this amendment,

and I am told that the Democrats have also approved as well. The

Subcommittee on Courts, Internet, and Intellectual Property is primarily concerned with the operation of a removal provision set

forth in section 111 of the bill.

In general, section 111 clarifies that confidential supervisory information or CSI prepared or collected by banks, securities, insurance and other financial regulators as part of their supervisory responsibilities is privileged from unauthorized disclosure under H.R.

1408. As a practical matter, this means that the regulator who establishes or creates a given database is its owner, and its contents

for the most part may not be disclosed by a third party absent the

99

regulator’s consent. The section therefore contemplates the need to

provide security and confidentiality in the sharing of such information.

Notwithstanding the privileged status of CSI under the bill, one

provision in section 111 would allow a third party the opportunity

to obtain disclosure through subpoena or discovery procedures. The

jurisdictional counterpart to this option would entitle the regulator,

upon motion, to remove the action to Federal court for adjudication

under section 111(e)(2)(a). The removal item, Mr. Chairman, is

what troubles me.

Specifically, we have identified two primary objections to section

111 in its present form. First, as drafted, section 111(e)(2)(a) would

apply to a wide variety of proceedings in State court, including

criminal prosecutions, civil fraud suits, and proceedings instituted

by State regulators. In such proceedings, a third party might well

assert that the CSI in question was relevant to a claim, even a constitutional defense. And, second, the language of section

111(e)(2)(a) would encourage unnecessary satellite litigation over

what part of a given case would be brought into Federal court and

what part would be allowed to remain in the State tribunal.

Mr. Chairman and fellow Members, the basic goal of section

111(e)(2)(a) is to assure that controversies over attempts to disclose

CSI will be heard by a Federal court, at least when the regulator

prefers the Federal forum. Another way to accomplish this objective

is to authorize a declaratory judgment action in Federal court by

the regulator. In fact, another provision in the legislation, section

111(k)(3), authorizes an originating financial regulator to bring a

declaratory judgment action in the United States District Court for

the District of Columbia to resolve disputes with a requesting financial regulator over disclosure of CSI.

As a result, the amendment simply allows a financial regulator

to bring a declaratory judgment action to prevent disclosure of CSI

to a third party seeking its disclosure. Mr. Chairman, this is simply

a cleaner way to achieve the same purpose served by the removal

provision in section 111, and I urge Members to support this, what

amounts to a technical amendment.

Chairman SENSENBRENNER. Does the gentleman have an amendment at the desk?

Mr. COBLE. There is an amendment at the desk.

Chairman SENSENBRENNER. The clerk will report the amendment.

The CLERK. Amendment to H.R. 1408 offered by Mr. Coble.

[The amendment follows:]

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Mr. COBLE. Unanimous consent to have the amendment declared

as read, Mr. Chairman.

Chairman SENSENBRENNER. Without objection, so ordered. The

gentleman is recognized for 5 minutes, which he has already used.

Mr. COBLE. And I used it prematurely, and I apologize to the

Chair for that.

Chairman SENSENBRENNER. Further debate on the amendment?

Does the gentleman from Alabama want to strike the last word at

this point?

Mr. BACHUS. I move to strike the last word.

Chairman SENSENBRENNER. The gentleman is recognized for 5

minutes. Let the Chair——

Mr. BACHUS. To address the amendment, not the bill.

Chairman SENSENBRENNER. Well, can we do it all at once, because we are——

Mr. BACHUS. I will do it all at once.

Chairman SENSENBRENNER. Let me say that the timer once

again has broken down, so I would ask the indulgence of all Members not to abuse the fact that there isn’t a red light shining in

your face, and the gentleman from Alabama is recognized for 5

minutes.

Mr. BACHUS. Thank you, Mr. Chairman. Mr. Chairman, I will be

brief. H.R. 1408 is legislation which will allow the over 250 various

State financial regulators and self-regulating financial organizations to exchange information about fraudulent acts. The Marvin

Frankel case alone cost consumers over $200 million, and it is estimated that the cost of this interchange system would be about $2

million initially and then about a half million dollars a year, so the

cost is a very good bargain for the American people. And I can go

101

into the details of the legislation. I think most of you, the Judiciary

Committee did a very good job on drawing up the issues.

This amendment replaces a removal provision which was poorly

written, and this is, as Mr. Coble said—I was listening to it—a

cleaner way of doing it.

Chairman SENSENBRENNER. Does the gentleman yield back his

time?

Mr. BACHUS. Yes.

Chairman SENSENBRENNER. Let the Chair make another public

service announcement. Chris at the clerk’s desk has a stopwatch,

and he will time the 5 minutes. When his hand goes up, that

means time is up.

The question is on——

Mr. WATT. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from North Carolina.

Mr. WATT. Mr. Chairman, I am having a little

trouble—I move to strike the last word——

Chairman SENSENBRENNER. The gentleman is recognized for 5

minutes.

Mr. WATT [continuing]. For the purpose of asking Mr. Coble a

question. This doesn’t seem to me to fit where the language says

that it fits. If it is 111(e)(2), it is 111(e)(3) that is about declaratory

judgments, I thought. Maybe I am missing something. What page

is this amendment on, Mr. Coble?

Mr. COBLE. If the gentleman would yield, Mr. Watt, I am told

that it is properly codified, that it bars from 111(k)(3), the staffer

advises me, and furthermore says that it is drafted correctly. As to

what page, Mr. Watt, hang on a minute and let me see if I can dig

that up.

Mr. BACHUS. It amends section 111 of the bill.

Mr. WATT. Yes, but it seems like section 111, the declaratory

judgment is in 111(e)(3) on page 48 of the bill.

Mr. COBLE. Mr. Watt, I think we are striking the removal provision, if the staffer could take that to Mr. Watt and show that to

him.

Mr. WATT. On page 43 of the bill? Okay, let me ask the gentleman another question, and maybe I should address this to the

Chair. I had understood that another amendment was going to be

offered that did something to a section that I had raised a question

about in the Banking Committee. Is there another amendment

coming forward, or did I miss something?

Chairman SENSENBRENNER. If the gentleman would yield, the

Chair is not aware of another amendment besides this one.

Mr. COBLE. And if the gentleman would yield, nor am I. I am not

aware of another amendment either.

Mr. WATT. All right. Thank you.

Mr. BACHUS. If I could clarify, are you talking about the fingerprint provision?

Mr. WATT. No, it didn’t have anything to do with fingerprints.

But that is all right.

Chairman SENSENBRENNER. Does the gentleman from North

Carolina yield back?

Mr. WATT. I yield back the balance of my time.

102

Chairman SENSENBRENNER. The question is on agreeing to the

amendment by the other gentleman from North Carolina, Mr.

Coble. Those in favor will signify by saying aye.

Opposed, no.

The ayes appear to have it. The ayes have it.

Mr. SMITH. Mr. Chairman?

Chairman SENSENBRENNER. For what purpose does the gentleman from Texas seek recognition?

Mr. SMITH. Mr. Chairman, I move to strike the last word.

Chairman SENSENBRENNER. The gentleman is recognized for 5

minutes.

Mr. SMITH. Thank you, Mr. Chairman. Mr. Chairman, in a

minute I would like to ask the gentleman from Alabama a question. I want to give him advance notice of my intent to do so.

Mr. Chairman, the intent of H.R. 1408, as I understand it, is to

promote information sharing to fight financial fraud, but I must

voice my opposition to the bill because, while it enhances information sharing within the financial community of regulators, it would

actually restrict information sharing with law enforcement agencies.

We have just reported the Patriot Act out of this Committee with

full support. That bill removes obstacles to law enforcement’s receiving and sharing information. In my judgment, now is not the

time to create new obstacles restricting law enforcement officials

from getting information they currently may obtain.

In particular, I am concerned about section 111(b) that prohibits

the disclosure to any person with three exceptions, Congress, General Accounting Office, and financial regulators, of all supervisory

information. Supervisory information includes, among other things,

any file, work paper, or similar information collected by the financial regulators.

We have heard from the Department of Justice, and know that

they have also met with the Financial Services Committee to express their concern about this provision. And so what I would do

is to hope that my friend from Alabama would consider language

for a floor manager’s amendment that would read, in substance,

that no provision of paragraph 1 shall be construed as preventing

access to supervisory information by law enforcement agencies, and

this simply would make it clear that we do not intend to deny law

enforcement the information they can currently obtain.

And I would like now to yield to my friend from Alabama.

Mr. BACHUS. Thank you. First of all, confidential supervisory information can be disclosed with either the permission of the relevant financial regulator, number one; or number two, if other than

that information is not granted, you can subpoena the information

or discover it in a court case. And those are the two ways you can

do it.

Mr. SMITH. Let me reclaim my time and say if that currently can

be done, I assume that there would be no objection to language

that would clarify that is the intent of the legislation.

Mr. BACHUS. Well, it already, actually what this bill does is, it

charges the financial regulators to just work together to develop a

network to coordinate antifraud information, and that network is

not a database. It simply allows computer connections, allowing the

regulators to swap information on existing databases.

103

Mr. SMITH. Let me reclaim my time quickly—— Mr. BACHUS. It would be wise for that information to be

swapped, unless both regulators agree to it. If a regulator actually

said, ‘‘We are opposed to this information being disclosed,’’ then because of adequacy or confidentiality concerns, there is a mechanism

in here—— Mr. SMITH. Let me reclaim my time. While I don’t want to quibble over the technicalities, I do want to make the very important

point, and that is that the Department of Justice believes as the

language now stands they will not be able to access the information

that they can now access. I think that is a legitimate concern, a

legitimate consideration, and I would hope that we could clarify the

language to alleviate their, in my opinion, just considerations.

Mr. BACHUS. Yes, and I would say to the gentleman that there

is an expression in one of the last sections of the bill that expresses

a sense of Congress that regulators should consider sharing additional information.

Mr. SMITH. Would you be willing to have additional language to

clarify that the Department of Justice can access the information

they can currently access?

Mr. BACHUS. Actually, we had two competing interests in there,

and that was, many Members of the Financial Services Committee

felt like there was certain information which shouldn’t be shared.

I can’t speak for the whole Committee.

I can say that what they are going to do is, they are going to sit

down over the next 6 months, they are going to develop a proposal.

They have 2 years to implement it. Once they have developed a

proposal in 6 months, then I would say that if any of the law enforcement agencies or regulators—— Mr. SMITH. Well, let me reclaim my time. I honestly don’t think

we can wait 6 months to correct a problem that the Department

of Justice feels that it has. And, Mr. Chairman—— Chairman SENSENBRENNER. The gentleman’s time has expired.

Mr. SMITH [continuing]. Mr. Chairman, I would simply urge you

to exercise whatever persuasion you can to correct this before we

got to the House floor with that bill.

Mr. BACHUS. If I could ask one more minute—— Chairman SENSENBRENNER. Without objection.

Mr. BACHUS [continuing]. You know, the basic thing it doesn’t

allow is personally identifiable information consumers, and that we

have chosen not to share.

Chairman SENSENBRENNER. For what purpose does the gentleman from Wisconsin seek recognition?

Mr. GREEN. Mr. Chairman, I move to strike the last word.

Chairman SENSENBRENNER. The gentleman is recognized for 5

minutes.

Mr. GREEN. Thank you, Mr. Chairman. Very briefly, I support

1408, H.R. 1408. I do, however, have one serious concern with the

bill.

As Members of the Committee know, each State has its own regulatory authority for the insurance industry. These offices are established and funded entirely under State laws and State constitutions. In short, they are purely an agency of State government.

Section 117 of H.R. 1408 would give the GAO, a Federal agency,

complete authority to audit State insurance records. I think all

104

Members would agree that giving a Federal agency such direct

power over a State government agency raises some serious States’ rights and sovereignty issues. While I understand the need for cooperation between the GAO and State insurance regulators, I don’t

believe this justifies giving the GAO the unfettered ability to subpoena or otherwise compel a State government agency to cooperate

with an audit.

Unfortunately, this issue was not raised until after the Financial

Services Committee completed consideration of this bill. I understand that Chairman Sensenbrenner has examined this issue and

determined it to be outside the jurisdiction of the Judiciary Committee, so we cannot reexamine the issue today. I just hope that

as the bill moves to the floor, we can revisit section 117 and make

appropriate changes.

As a Member of both the Financial Services and Judiciary Committees, I would be happy to work with the Chairman and his staff

to accomplish this. With that—— Chairman SENSENBRENNER. Will the gentleman yield?

Mr. GREEN. I yield.

Chairman SENSENBRENNER. The gentleman is correct on both

points, first on the merits, and secondly, section 117 is specifically

outside the sequential referral that the Judiciary Committee received, and thus any amendments to section 117 the Chair would

feel constrained to rule out of order.

Mr. GREEN. That is right, and so I won’t be offering an amendment. I would just seek to work with the Chairman as we move

to the floor.

With that, I yield my time back.

Chairman SENSENBRENNER. The gentleman’s time has expired.

Are there further amendments?

Mr. SMITH. Mr. Chairman?

Chairman SENSENBRENNER. Are there further amendments? The

gentleman from Texas, do you have an amendment?

Mr. SMITH. Mr. Chairman, I would like to engage the gentleman

from Alabama in a colloquy, very briefly.

Chairman SENSENBRENNER. You already have been recognized

once, and so has the gentleman from Alabama.

Mr. GEKAS. I seek recognition and would yield.

Chairman SENSENBRENNER. The gentleman from Pennsylvania

moves to strike the last word, and yields to the gentleman from

Texas.

Mr. SMITH. I thank the gentleman from Pennsylvania for yielding. Let me yield to the gentleman from Alabama, and see if the

amendment that I just showed him would be acceptable to him,

and if so, I would like to offer it.

Mr. BACHUS. Mr. Chairman, it seems innocuous enough, but let

me say this. Without passing it by staff, I am not in a position to

accept it.

I am in a position to do this. I am in a position to consult Members on both sides of the aisle and, as this goes to the floor, to offer

it on the floor.

Mr. SMITH. I thank the gentleman for mentioning that, and I will

look forward to working with him, and hopefully we can offer that

together on the House floor. And I thank the gentleman from Pennsylvania for yielding.

105

Mr. GEKAS. I yield back the balance of my time.

Chairman SENSENBRENNER. Does the gentleman from Texas wish

to offer the amendment?

Mr. SMITH. Mr. Chairman, I am not going to offer the amendment now, in the expectation that Mr. Bachus and I will offer the

amendment on the House floor.

Chairman SENSENBRENNER. The time of the gentleman from

Pennsylvania is yielded back. Are there further amendments? For

what purpose does the gentlewoman from Texas seek recognition?

Ms. JACKSON LEE. I would like to strike the last word.

Chairman SENSENBRENNER. The gentlewoman is recognized for 5

minutes.

Ms. JACKSON LEE. Thank you very much, Mr. Chairman.

In light of the events of past weeks and other issues, this bill obviously is a very important bill that adds to the sharing of information and also the elimination, or at least the working toward the

elimination of fraud in the financial services industry.

I would like to yield to Mr. Bachus, I guess our resident expert

on this, for a question as it relates to any privacy elements in this

bill that do not conflict or would not conflict with the intent of the

bill to eliminate fraud. Are there any provisions that give us comfort that the respective agencies cannot go too far with the information? I yield to the gentleman from Alabama.

Mr. BACHUS. In fact, a great deal of the bill has confidentiality

and privacy protections and safeguards in the bill, and I would say

the bulk of the bill actually has these safeguards in sharing of information.

Ms. JACKSON LEE. We can be sure, then, with the ultimate and

potential passage of this bill that we have not eliminated—and I

reclaim my time—have not eliminated those concerns regarding

policy, which of course in this Committee and I know in the Financial Services Committee the privacy issues have been vigorously

discussed and debated. Is that correct? I yield to the gentleman.

Mr. BACHUS. Yes, and the information that is shared is final disciplinary actions or formal adjudications by the bodies, not rumors

or simply statements as to what somebody said during an investigation. These are actually formal findings of the different regulatory bodies.

Ms. JACKSON LEE. Reclaiming my time, let me thank the gentleman for that. Being a member of the bar, there are procedures

where information regarding disciplinary actions on lawyers are

shared. Knowing the impact that fraudulent securities professionals can have on the elderly and the less informed, I think it

is important to have the privacy protections but also to have this

reporting feature to eliminate such, if you will, bad practices in the

industry.

And I thank the gentleman. I yield back my time, Mr. Chairman.

Chairman SENSENBRENNER. Are there further amendments?

Hearing none, the Chair notes the presence of a reporting

quorum. The question occurs on the motion to report the bill, H.R.

1408, favorably, as amended. All in favor, say aye.

Opposed, no.

The ayes appear to have it. The ayes have it, and the motion to

report favorably is adopted. Without objection, the bill will be reported favorably to the House in form of a single amendment in the

106

nature of a substitute, incorporating the amendment adopted here

today.

Without objection, the Chairman is authorized to move to go to

conference pursuant to House rules. Without objection, the staff is

directed to make any technical and conforming changes, and all

Members will be given 2 days, as provided by the House rules, in

which to submit additional dissenting, supplemental, or minority

views.

[Intervening business.]

And the Committee stands adjourned.

[Whereupon, at 5:12 p.m., the Committee was adjourned.]

(107)

ADDITIONAL VIEWS

We support the bill as passed by the Committee on the Judiciary

and would oppose an attempt to carve out of the financial regulator

supervisory privilege an exemption for law enforcement, as was

proposed at the markup by Representative Smith. Such an exemption is both unnecessary and unwise.

A law enforcement exemption is unnecessary because H.R. 1408

does not in any way restrict the ability of law enforcement agencies

to obtain the books and records of a financial institution, such as

a bank, broker-dealer, or insurance company. Under the bill, law

enforcement agencies could still obtain—directly from a financial

institution—customer account and other records of an institution to

the extent provided by existing law. Nothing in H.R. 1408 impairs

that process.

It would also be unwise to grant a law enforcement exemption

to the financial regulator supervisory privilege because it would undermine the privacy of individuals’ financial records. The bill clarifies that law enforcement agencies should work directly with the

appropriate financial regulator—primarily the Federal banking

agencies and Securities and Exchange Commission—if law enforcement seeks to obtain the confidential reports of examination prepared by the financial regulator. This process encourages cooperation between law enforcement and the financial regulators.

Equally important, such a process ensures that law enforcement

officials obtain information that is relevant to their inquiry, but not

extraneous information about persons or entities that are not the

target of the law enforcement investigation. If law enforcement

agencies are exempted from the financial regulator supervisory

privilege, it could potentially result in confidential information unrelated to the investigation becoming public. The current practice,

whereby law enforcement agencies obtain financial regulatory reports from the regulatory body (as opposed to the regulated entity),

is the best way to provide law enforcement with relevant information without compromising the privacy of those who are not the

focus of the investigation.

For these reasons, we would oppose any attempt to create a law

enforcement exemption to the financial regulator supervisory privilege.

JOHN CONYERS, JR.

MAXINE WATERS.

Æ