BNL SUBPOENA RENEWAL
Henry B. Gonzalez, (TX-20)
(House of Representatives - April 24, 1991)
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Mississippi [Mr. Espy], is recognized for 60 minutes.
[Mr. ESPY addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Texas [Mr. Gonzalez] is recognized for 30 minutes.
- Mr. GONZALEZ. Mr. Speaker, I would like to report to the House of Representatives about the quest of the Committee on Banking, Housing and Urban Affairs for certain subpoenaed documents. As the House is aware, the Banking Committee has been vigorously investigating, in the last Congress and in this one, the secret and unauthorized loans to Iraq by an Italian bank, Banca Nazionale del Lavoro, known as BNL, through its offices in the United States.
- Loans now estimated at over $4 billion went from that bank to assist Saddam Hussein. A substantial portion may have gone into Iraq's secret network of companies and individuals for obtaining Western technology. The subject of BNL, and the examination system for BLN, continues to be of the greatest interest as we watch the consequences of the conflict with Iraq, and draw lessons from the circumstances leading up to that conflict, which included those loans to Iraq and Iraq's use of them. No one should doubt the Banking Committee's strong and unflagging determination to investigate fully this matter of the highest oversight and legislative importance.
- In November 1990, the Banking Committee voted to subpoena the Federal Reserve System for the reports of State-prepared examinations of BNL in its files. The Federal Reserve System explains that it regularly uses these examination reports in its umbrella review system for foreign banks like BNL. For four of BNL's five offices--those in Georgia, Florida, New York, and California--the Federal Reserve was able and willing, upon receipt of the subpoena, to provide the reports. However, the banking agency for the fifth State, Illinois, filed suit to enjoin our obtaining the reports of BNL examinations it conducted. The State agency argued in part that a standard form confidentiality agreement between Federal and State banking agencies barred our obtaining those reports from the Federal Reserve. Rejecting the Banking Committee's motion to dismiss the case, a Federal judge in Chicago granted the State agency the injunction which it sought, and the case is now on appeal.
- The committee issued the subpoena for BNL's examination reports last year during the 101st Congress. That subpoena expired with the beginning of the current 102d Congress in January. Accordingly, as part of the committee's continuing BNL investigation, the committee met on April 11 regarding a renewal of the subpoena in this 102d Congress to avoid delays or side-disputes about the expiration of the last Congress. Additional subpoenas, not involved in the court case, were authorized as a result of the widening of the investigation.
- The committee can now report to the House that it voted--by a unanimous vote of 40 to 0--to renew that subpoena, on the same basis as in the last Congress. As in that Congress, the committee will defer the subpoena, as to the Illinois reports, in light of the pending proceeding, and will give the Federal Reserve formal notice when it sets a return date. This vote should send a strong signal to those who would file lawsuits to frustrate congressional investigations. A congressional committee will not be distracted or intimidated by such lawsuits.
- The chief problem faced by the committee regarding this lawsuit has been that the State agency, by invoking the slow workings of the judicial system, threatens by delay to frustrate the investigation of the loans to Saddam Hussein, and the consideration of legislative reform. Through the House counsel which represents the Banking Committee in this case, the committee has asked the court of appeals to do what it can, in a proper way, to prevent the decision regarding dismissal of the case from being delayed through remands or other extended proceedings. In February, the investigation made the same request of the court of appeals to avoid such delaying proceedings in a formal report.
- Now, again, this committee vote of 40 to 0 asks the court of appeals to prevent delays from remands or other extended proceedings. As the BNL report said in February, there may be court cases in which more rounds of district court proceedings help through allowing more study or more settlement talks, but this is not one of them. With further delays, this would truly become a case, as the Supreme Court once said, where `protracted delay has frustrated a valid congressional inquiry.' The committee's hearings and reports all emphasize the timeliness of the Iraq loan
- investigation. Further delays in this matter would be a serious interference with the Banking Committee's forceful determination to press vigorously with this investigation.
- I want to take this opportunity to mention some of my own efforts, and the staff's, on the issue of these particular State examination reports. In November 1990, after the committee issued its subpoena to Chairman Greenspan of the Federal Reserve, I personally discussed the subpoena issues with him on November 28 in what proved to be a successful effort at working them out. This was a serious discussion between the principals, of the kind which, instead of lawsuits, should resolve such matters. Immediately thereafter, on December 4, Chairman Greenspan carried out his side of our discussion, writing me that he would provide those State-prepared reports, as he did for the four BNL States that did not attempt to delay us by lawsuit.
- Out of an abundance of care for all interest involved, the committee has had its staff and House counsel go back to inquire into the official records that would shed light on the standard form confidentiality agreement relied upon by the State. It has appeared from these inquiries that under the umbrella system established pursuant to the International Banking Act of 1978, the Federal Reserve has received the State-prepared reports of examinations of foreign banks, long before there was any such agreement. The Federal Reserve's general counsel described to my committee counsel on April 4 what the official records for BNL reflect. BNL opened its Chicago office in 1982. The first Illinois State-prepared examination report of BNL was completed on June 10, 1983. That report was transmitted to the Federal Reserve Bank of Chicago by cover letter dated August 23, 1983. Not until 1987, years later, did this agreement come into existence, resulting from a history entirely separate from the umbrella supervision system.
- Apparently, the Federal Financial Institutions Examination Council, or FFIEC, drafted the standard form agreement. By act of Congress, the FFIEC promotes vigilance and uniformity in the examination reports relied upon by Federal financial regulators, including both the Federal Reserve and the Federal Home Loan Bank Board which supervised savings and loans until succeeded by the Office of Thrift Supervision. The statute creating the FFIEC also empowers a State liaison committee [SLC] to work with the council, recognizing that Federal supervision has relied in the past upon State examinations of even quality.
- According to public reports and records, in the mid-1980's, the FFIEC and its SLC worked toward a policy for sharing of examination reports for domestic banks between Federal and State regulators. There was already sharing of examination reports for foreign bank offices pursuant to the International Banking Act of 1978--as reflected by Illinois providing its BNL examinations to the Federal Reserve from the inception in 1983 of its examinations of BNL--and the problem at issue was thus with State-chartered domestic banks, particularly those which are part of an interstate bank holding company. The timing, sequence, and drafting clearly shows that the agreement is tied to examination reports of domestic banks, which sometimes were not being shared, rather than those for foreign banks, which were under the umbrella system pursuant to the International Banking Act.
- Although the agreement thus was not aimed at examination reports like BNL's, our inquiries have continued because we wished to know what the agreement means when it does apply. It appears that the policy leading to the standard form confidentiality agreement was approved at the FFIEC meeting on March 14, 1986. Of particular interest, the official minutes of that meeting describe the explanation of Edwin J. Gray, then chairman of the Federal Home Loan Bank Board which supervised savings and loans, who was at that time also chairman of the FFIEC itself. These minutes record that:
- Chairman Gray said that he wasn't sure how the various state legislatures worked but that he was not sure how the state agencies could protect the confidentiality of the information in all circumstances. He noted that not even the federal agencies could make such a representation.
- The committee has been quite familiar with Chairman Gray, and can very safely say that he knew as well or better than any Federal regulator that Federal agencies cannot withhold from the Banking Committee documents that are needed for oversight of how bank supervision is working. Chairman Gray's statement that `not even the Federal agencies could make such a representation' as to what would happen with `the information in all circumstances' reflects the universal understandings that Federal banking agencies must, as part of their duties, provide evidence to Congress and the Federal courts for them to perform their constitutional functions, and that no policies or agreements would curtail that duty. Other FFIEC discussions make plain, as those familiar with this context will recognize, that confidentiality policies and agreements have a much more mundane focus, namely the noninvestigative access accorded by State freedom of information acts, requests by regulated banks for parts of exports normally withheld from them, and the like.
- Pursuant to the policy approved in April 1986, the FFIEC and its SLC devised their model agreement for confidentiality between Federal and State regulators, which was promulgated in January 1987. The Federal Reserve adapted that agreement to incorporate its regulations on release of examination reports in response to subpoenas, and also adapted the agreement explicitly to apply to examination reports of domestic banks, not foreign banks. Illinois has noted that it began providing the pertinent domestic bank examination reports to the Federal Reserve starting in January 1987, and it signed the model agreement with the Federal Reserve in March 1987. Plainly, the Illinois agreement was bound up with providing those domestic reports, not with the foreign bank reports which it had been providing for years pursuant to the umbrella supervision system.
- As for the other four BNL States, identical agreements were signed by Florida, Georgia, and New York, while California has a parallel arrangement. The Illinois State banking agency has
- complained that States would be injured or rendered uncooperative by the Federal Reserve's compliance with the committee's subpoena. Unlikely as that seems, those four States have been checked with by the House counsel's office, to see whether as a result of the committee's demand in its Iraq loan investigation, and the Federal Reserve's providing of the BNL report they prepared, they ceased sharing examination reports with the Federal Reserve. As one would expect, all of the four BNL States of Florida, Georgia, California, and New York have confirmed that they have continued to share examination reports with the Federal Reserve.
- What all this shows only too clearly are the consequences if congressional oversight were to be frustrated by lawsuits like this one. The standard form agreement is on interagency scope and nationwide application, used by a number of Federal agencies in dealings with the 50 States. Thus, the agreement covers large parts of the national financial regulatory system, and even larger parts if it were construed, through `oral modifications' or otherwise, to cover parts of the system, like foreign banks, which its terms do not cover. It is not all that different from agreements or understanding that Federal regulators have with regulated businesses which number in the thousands.
- The February report noted how quickly the notion spread of withholding documents from the committee on the argument that the committee should obtain them, not from the files of the Federal Reserve which had them and used them in the umbrella system the committee sought to oversee, but with the permission, and pursuant to the conditions, of the multifarious original preparers. As the committee sees how vast are the subject areas covered by such agreements or understandings, it stands more resolutely than ever, by its unanimous vote renewing the subpoena, on its right not to have lawsuits bring disputes over how it conducts its investigations into Federal court. If the Federal courts were to judicialize this third-party complaint about Congress obtaining agency files, they would do so for other examples of that aspect of congressional investigations. If the Federal courts were to judicialize this aspect of congressional investigations, they would do so for the other aspects. Those considering the route of delaying congressional investigations will have a complete roadmap, a gold-plated invitation and a guarantee of hospitality.
- Every Member of this House is familiar with the enormous bills to the taxpayer for the savings and loan scandal and the necessity for vigorous oversight of the banking supervision system. Yet, if the committee's Iraq loan investigation can be interfered with by lawsuit, the same arguments about the same standard form agreement would be raised against oversight for savings and loans, and in fact for much of the banking system. Similar arguments would be raised throughout Congressional oversight of departments and agencies. The Banking Committee has resolutely refused to let oversight be frustrated in that fashion.
- I will briefly note another development in the BNL matter. On February 28, it was announced that a grand jury indicted 10 defendants on 347 counts of fraud and related charges concerning more than $4 billion loans and credit extension to Iraq. Together with the connections between BNL and the network of Iraq's front companies, this will be illuminated in the committee's hearings. At this time, that is noted just for its confirmation of the vital need for the Banking Committee's BNL Inquiry, which is the only way that major questions about systemic matters and needs for legislation will be answered to which such a huge fraud points, but which will not be answered in a trial narrowly focused on the allegations about the defendants. Thus, the House of Representatives understands why the Banking Committee declares, as it strongly believes, that the injunction blocking its BNL inquiry is against the national interest.
Federal Financial Institutions Examination Council
To: Federal Financial Institutions Examination Council.
Subject: Minutes of the March 14, 1986 FFIEC Meeting.
Chairman Gray convened the meeting at 9:10 a.m. in the conference room of the Comptroller of the Currency on Friday, March 14, 1986. Representing their agencies were:
Robert L. Clarke, Comptroller of the Currency.
Edwin J. Gray, Chairman, FHLBB.
Roger W. Jepsen, Chairman, NCUA.
Preston Martin, Board Member, FRB.
L. William Seidman, Chairman, FDIC.
Representing the State Liaison Committee were:
Sidney A. Bailey, Commissioner of Financial Institutions, Virginia.
Charles W. Burge, Deputy Commissioner of Thrift Institutions, Georgia.
Tom D. McEldowney, Director, Department of Finance, Idaho.
PROPOSED POLICY ON THE EXCHANGE OF SUPERVISORY INFORMATION AMONG THE FEDERAL AND STATE SUPERVISORY AGENCIES
James Houpt, FRB, stated that this policy was being proposed to the Council because of the growth in interstate banking activities and the growing need for federal and state agencies to cooperate in their supervisory efforts. Mr. Houpt summarized the proposed policy for the Council. Mr. Bailey, SLC Chairman, said that the policy as drafted seemed to focus on examination data but that information pertaining to applications was also important and that it should be made clear that such information was also covered by the proposed policy. He said that the primary concern is with safety and soundness and that the purpose of the policy should be to provide for the soundness and that the purpose of the policy should be to provide for the rountine sharing of information. Mr. Bailey questioned the definition of `legally able' used in term #2. Mr. Houpt stated that this wording was only intended to protect the confidentiality of information obtained from the federal agencies from disclosure under state freedom of information laws and was not intended to imply that states would have to have specific laws providing an absolute guarantee that such information could never be disclosed. Chairman Gray said that he wasn't sure how the various state legislatures worked but that he was not sure how the state agencies could protect the confidentiality of the information in all circumstances. He noted that not even the federal agencies could make such a representation. (Council Member Martin, FRB, entered the meeting at this point, 9:30 a.m.) Mr. Bailey suggested that if expanded access to the FDIC's existing data base could be arranged on a need-to-know basis that it would provide most of the data that are needed by the states. About 30 states are already linked into this data base for information on state chartered banks in their own states. Mr. Houpt said the FDIC applies its own examination ratings to state member and national banks and might have examination ratings different from those of the principal agency. Mr. Bailey said the FDIC rating is not what the states are interested in: the states want the information on which the rating is based. Mr. Selby, OCC, said the Office of the Comptroller of the Currency would want to release its own information and not have it released from the FDIC. (Mr. Clarke left the meeting at 9:50 a.m.)
Council Member Martin made a motion to approve the policy, with the suggested changes by Mr. Bailey and Council Member Jepsen. The motion was seconded by Mr. Selby (acting for Council Member Clarke) and unanimously approved.
The Examination Council announced today its approval of a Model Agreement on Sharing of Confidential Supervisory Information. The Model Agreement was developed because of the increased importance of interstate banking and thrift operations and the growing need for federal and state agencies to cooperate in their supervisory efforts.
The Model Agreement was developd in cooperation with the Examination Council's State Liaison Committee, a group of five state supervisors of depository institutions that advises the Council on matters affecting the supervision of state-chartered depository institutions. The Model Agreement is an extension of the General Policy Statement on the Exchange of Supervisory Information Among the Federal and State Supervisory Agencies that was adopted by the Council on March 14, 1986.
The Council is recommending to the Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Home Loan Bank Board, National Credit Union Administration, and Office of the Comptroller of the Currency that they consider this Model Agreement when they develop their own agreements for the exchange of confidential supervisory information with state supervisory agencies. Also, the Council's State Liaison Committee plans to recommend to the states that they give consideration to the Model Agreement in developing agreements with the federal supervisory agencies and the supervisory agencies of other states.
A copy of the Model Agreement is attached.
Agreement on Sharing of Confidential Supervisory Information
The ------ (`Requesting Agency') and the ------ (`Responding Agency') hereby agree (`Agreement') to exchange confidential supervisory information including reports of examination relating to depository institutions which are related to an organization for which the Requesting Agency has supervisory jurisdiction or which have submitted an application to the Requesting Agency. Under this Agreement, either the Federal or the State Agency may request information as the Requesting Agency subject to the conditions, obligations, responsibilities of this Agreement. In submitting a request, the Requesting Agency shall provide a specific description of the information desired and its need for the information. The Responding Agency will make all reasonable efforts to reply to the request within twenty (20) working days of its receipt.
The Requesting Agency specifically agrees to be bound by the same standards of confidentiality and other limitations and conditions respecting the use of any such data received from the Responding Agency as specified in the Joint Statement of Policy on Interagency Exchange of Supervisory Information and dated August 23, 1984, adopted by the Board of Governors of the Federal Reserve System, Office of Comptroller of the Currency, the Federal Home Loan Bank Board, and the Federal Deposit Insurance Corporation.
The Requesting Agency expressly agrees further to limit its use of any such information it receives under this Agreement to functions related to the exercise of its appropriate supervisory authority.
The Requesting Agency acknowledges that all confidential supervisory information, in whatever form, furnished by the Responding Agency remains the property of the Responding Agency and agrees that no further disclosure of any information obtained from the Responding Agency under this Agreement shall be made to any other state, local, or federal agency, court or legislative body, or any other agency, instrumentality, entity, or person without the express written permission of the Responding Agency.
By this Agreement, the Requesting Agency gives express assurance that under the applicable laws, regulations, and judicial rulings it has the authority to comply fully with the use and disclosure limitations and conditions of this Agreement; that it will provide written notification to the Responding Agency within ten days of any material change to this authority or any violation of this Agreement; and that any such change or violation shall automatically terminate this Agreement unless the Responding Agency waives termination in writing within thirty days of learning of the event constituting the change or violation.
In event of termination of this Agreement, all information received hereunder by the Requesting Agency shall be immediately returned to the Responding Agency with the express agreement that no copies or derivative information will be retained by the Requesting Agency. In addition, and without terminating the Agreement, the Responding Agency may, in its sole discretion, require the return of all documents and derivative information previously supplied on a particular depository institution.
This Agreement shall in no way limit the discretion of the Responding Agency to deny future requests for confidential supervisory information, in whole or part, for any reason consistent with the Council's General Policy for sharing such information, adopted at its meeting March 14, 1986, and with Responding Agency's own supervisory interests and obligations.