24562 Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Rules and Regulations

FARM CREDIT ADMINISTRATION of Federal laws and regulations could views on the reproposed regulation. undermine public confidence in the Hence, after the comment period closed, 12 CFR Part 617 FCS and affect the safety and soundness FCA staff met with the commenters in RIN 3052±AB33 of FCS institutions. System institutions Sacramento, California, on September have the responsibility to establish and 27, 1995. This meeting was held in Referral of Known or Suspected maintain safeguards to detect, deter, and compliance with the FCA Board’s Policy Criminal Violations report criminal activity involving the Statement FCA–PS–37 published in the assets, operations, or affairs of the Federal Register on April 1, 1992 (57 FR AGENCY: Farm Credit Administration institution. Law enforcement agencies 11083), which addresses (FCA). need to receive timely and specific communications with the public during ACTION: Final rule. information from FCS institutions on the rulemaking process. known or suspected criminal violations During the meeting, commenters SUMMARY: The Farm Credit to determine whether investigations and expounded on their written comments. Administration (FCA), by order of the prosecutions are warranted. After the meeting, several attendees FCA Board, issues a final rule amending The Interagency Bank Fraud Working provided written confirmation of the its regulations governing the referral of Group (BFWG) was formed to address meeting discussions. No new known or suspected criminal violations. concerns that financial institutions were substantive comments were made at the The objective of this final regulation is becoming increasingly vulnerable to meeting and, thus, comments made at to promote consistency, efficiencies, insider fraud and prosecutions were not the meeting are not separately described and timeliness by Farm Credit System keeping pace with criminality, and to herein. These follow-up letters and (FCS or System) institutions in promote cooperation toward the goal of minutes of the meeting are retained in reporting, investigating, and aiding in improving the Federal Government’s the FCA’s rulemaking file and are the prosecution of known or suspected response to white-collar crime in the available for public review. criminal activities. Therefore, the final Nation’s federally insured and/or regulation requires System institutions regulated financial institutions. The II. Analysis of Comments to the to notify law enforcement agencies of BFWG consists of the Office of the Reproposed Regulation and FCA known or suspected criminal violations Comptroller of the Currency, the Board Responses that meet certain reporting thresholds. of Governors of the Federal Reserve A. The Need for a New Criminal Generally, a criminal violation must be System, the Federal Deposit Insurance Referral Regulation reported under this part if there is a Corporation, the Office of Thrift reasonable basis to conclude that there Supervision, the National Credit Union Several commenters questioned the was an intent to ‘‘defraud’’ a System Administration, the Farm Credit need for a new criminal referral institution and the amount of the actual Administration, the Federal Bureau of regulation and argued that the existing or potential loss meets the reporting Investigation, the U.S. Secret Service, regulation (found in 12 CFR part 617) is thresholds. the Department of Justice, and the U.S. adequate to ensure the proper reporting The final regulation mandates the Department of the Treasury. The of criminal referrals. The FCA disagrees continued use of the FCA Criminal objectives of the BFWG were to facilitate and believes that the existing criminal Referral Form (hereinafter FCA Referral the reporting of criminal activity by referral regulation should be revised Form), which is located in the FCA financial institutions and to enhance the because it is out-of-date and fails to Examination Manual, for making a law enforcement agencies’ ability to reflect the arms-length relationship criminal referral. investigate and prosecute the matters between the FCA and the System. DATES: The regulation shall become reported. To accomplish these The existing regulation, first effective upon the expiration of 30 days objectives, the BFWG developed promulgated in 1982, has no minimum after publication during which either or uniform reporting standards and reporting thresholds and requires the both houses of Congress are in session. processes for filing criminal referrals reporting of all criminal violations. Notice of the effective date will be and developed a model regulation. Further, the existing regulation does not published in the Federal Register. Following the BFWG’s guidance, the contain procedures adequate to ensure consistent System-wide reporting. A FOR FURTHER INFORMATION CONTACT: FCA proposed a regulation that was 1982 interpretative letter from the FCA Eric Howard, Policy Analyst, Regulation published in the Federal Register on to the President of each Farm Credit Development Division, Office of October 13, 1992 (57 FR 46819). The Bank introduced procedures not Policy Development and Risk Control, comment period for the proposed included in the regulation at part 617. Farm Credit Administration, McLean, regulation amending part 617 closed on The letter indicated that dollar-reporting VA 22102–5090, (703) 883–4498, TDD November 12, 1992. Pursuant to the thresholds could be applied in certain (703) 883–4444, commenters’ request, the FCA Board agreed to republish the proposed circumstances and emphasized the or regulation in order to afford the public significant discretion District Bank Jane Virga, Senior Attorney, Legal another opportunity to comment. The counsel had in reviewing cases of Counsel Division, Office of General reproposed regulation was published in suspected violations. At present, some Counsel, Farm Credit Administration, the Federal Register on June 20, 1994 institutions report all violations and McLean, VA 22102–5090, (703) 883– (59 FR 31562). The FCA considered and some follow the 1982 interpretative 4020, TDD (703) 883–4444. addressed all comments to the proposed letter and only report criminal SUPPLEMENTARY INFORMATION: regulation in the reproposed regulation. violations exceeding certain thresholds, Following the reproposal, there were which in some cases is $50,000. This I. Background several requests that FCA staff meet final rule supersedes the guidelines Pursuant to the Farm Credit Act of with the commenters to discuss issues provided in the 1982 interpretative 1971, as amended, the FCA regulates and problems that arise in the area of letter and the existing regulation. The and examines FCS institutions for safety criminal referrals. Commenters believed final rule establishes reporting and soundness and for compliance with that it would provide a better thresholds that all System institutions Federal laws and regulations. Violations opportunity for them to present their must follow. Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Rules and Regulations 24563

The existing regulation established criminal referral regulation should from $5,000 to $25,000. This action slightly different procedures for incorporate the core principles of the responds to the commenters’ requests reporting violations allegedly model regulation. for higher thresholds. It also is committed by institution personnel and consistent with the BFWG’s revised B. Reporting Threshold Limits procedures for reporting violations recommendations on reporting allegedly committed by borrowers. The The dollar amount that would trigger thresholds, which the BFWG raised in existing regulation specifically requires the requirement to make a criminal response to commentary after the model that criminal referrals concerning referral has been a matter of some regulation was first proposed. institution personnel be reported to the controversy. The proposed and The use of uniform reporting Chief Examiner of FCA’s Office of reproposed regulation established thresholds will enhance the ability of Examination and that those concerning reporting thresholds of $1,000 and the Federal financial regulatory agencies borrowers be reported to the FCA. The $5,000 for known and unknown and the law enforcement agencies to regulation also specifies that the Chief suspects, respectively, and $0 for detect, investigate, and prosecute Examiner is to refer cases concerning institution personnel. (The term known or suspected criminal activities. criminal law violations by institution ‘‘unknown suspect’’ is used where a Therefore, the final regulation personnel to the U.S. Attorney, while criminal violation has occurred but no establishes reporting thresholds of $0 the general counsel of the Farm Credit reasonable basis exists for identifying for institution personnel, $5,000 for district is to refer criminal law the perpetrator.) Although commenters known suspects, and $25,000 for violations by borrowers to the U.S. supported the $0 reporting threshold for unknown suspects. institution personnel, they argued that Attorney and report the referral to the C. Compliance Costs FCA’s General Counsel. The final the FCA should adopt higher reporting regulation makes the reporting thresholds for borrowers. The Many of the commenters expressed procedures for institution personnel and commenters’ principal objection to the concern about the cost of compliance borrowers the same. It requires $1,000 and $5,000 thresholds was that with the regulatory requirements for institutions to make these referrals few investigations or prosecutions by making a criminal referral. The directly to the appropriate Federal law Federal law enforcement authorities commenters were concerned that enforcement authorities and to provide result from referrals unless the amount criminal referrals are costly and time- copies of all referrals to the FCA’s Office at issue is substantial. Several consuming, yet rarely result in of General Counsel. It is the Office of commenters suggested that a $50,000 investigations, much less prosecutions. General Counsel that, in practice, reporting threshold for borrowers would For example, one commenter indicated monitors criminal referrals and has be appropriate. One commenter that it took 40 hours of an employee’s primary contact with Federal law suggested that reporting thresholds time to investigate an allegation and enforcement authorities. The final should be the same for borrowers and complete a criminal referral form. regulation reflects that role in addition unknown suspects. Another commenter Another commenter indicated that legal to bringing greater consistency to the stated that if the FCA was not counsel was necessary to evaluate the referral process. mandating the use of a Uniform sufficiency of evidence or the In addition, the existing regulation is Criminal Referral Form it should not appropriateness of making certain not consistent with the BFWG’s mandate the use of uniform reporting criminal referrals. recommendations concerning reporting thresholds. The FCA recognizes that System thresholds, which have been The BFWG first recommended institutions will incur costs to comply implemented by the other Federal reporting thresholds of $1,000 for with the final regulation just as they financial regulatory agencies. The known suspects and $5,000 for currently incur costs to make a criminal BFWG, which included the FCA, unknown suspects. The BFWG referral. The FCA believes that the established the same thresholds for all subsequently revised the thresholds and benefit of timely and consistent Federal financial regulatory agencies. recommended reporting thresholds at reporting of criminal referrals at the The BFWG believed that uniform $5,000 for borrowers and $25,000 for new, higher reporting thresholds will thresholds would enhance the ability of unknown suspects. The BFWG has not outweigh the expense of compliance. the Federal financial regulatory agencies changed its recommendation of $0 for Also, the regulation will standardize the and the law enforcement agencies to institution personnel. The Federal law reporting process and ensure that detect, investigate, and prosecute enforcement authorities that are part of institutions apply uniform standards to known or suspected criminal violations. the BFWG, including the Department of all affected parties (borrowers, The Department of Justice, as a member Justice, believe these revised reporting employees, officers, and directors). of the BFWG and oversight agency for thresholds are appropriate and have However, compliance costs can be the Offices of the U.S. Attorneys, specifically stated that they want to minimized. For instance, an institution assisted in the establishment of the receive all criminal referrals meeting is not required to conduct an exhaustive thresholds. Therefore, as a participant in these thresholds. investigation of every reported the BFWG and in concurrence with the In the final regulation reporting violation. Rather, an institution is only Department of Justice’s judgment on this thresholds for institution personnel will required to conduct an inquiry matter, the FCA is establishing the remain at $0, so that any criminal act by sufficient to complete the FCA Referral reporting thresholds as recommended institution personnel will be reported. Form. by the BFWG. After careful evaluation of the BFWG’s Although the FCA’s final regulation recommendations and the commenters’ D. Defining Potential Loss has been tailored, as appropriate, to concerns, the Agency also believes that Several commenters believed that the address concerns raised by agricultural the reporting thresholds should be FCA’s discussion of ‘‘potential loss’’ in lending, it is patterned on the BFWG’s increased for both known and unknown the preamble to the reproposed model regulation and the rules suspects. Thus, the FCA is increasing regulation needed further clarification. promulgated by the other Federal the threshold for known suspects from The preamble indicated that potential financial regulatory agencies. The FCA $1,000 to $5,000. The threshold for loss would always equal the amount of continues to believe that the FCA unknown suspects is also increased the collateral conversion or financial 24564 Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Rules and Regulations misstatement. A number of commenters results. A loss (or potential loss) over there appears to be a reasonable basis to disagreed with this interpretation. They the threshold amount and the requisite believe that a criminal violation has pointed out that in some instances a intent must coincide before a criminal occurred and, if so, to report the lender may reasonably expect the referral is required. violation to the proper law enforcement potential loss to be smaller or even zero. Some commenters suggested that authorities. The FCA did not adopt the This could occur, for example, if a extenuating circumstances might argue language in current § 617.7160 because financial misstatement, although in against prosecution in a situation where the term ‘‘substantial evidence’’ may excess of $5,000, was insignificant in a criminal referral is required. An suggest a higher evidentiary standard light of the borrower’s overall financial institution may always express its view than may be warranted in determining position. Similarly, a lender might on whether prosecution does or does whether a criminal violation may have reasonably expect no loss on a loan, not appear to be warranted to the occurred. despite a conversion of collateral worth Federal authorities, including a U.S. The FCA reiterates that, generally, a more than $5,000, if the remaining Attorney or investigatory agency. A criminal violation that must be reported collateral well exceeded the lender’s well-reasoned recommendation against under this part involves a determination requirements and no other obstacle to prosecution in appropriate cases should that there is a reasonable basis to believe full repayment existed. Finally, the address any perceived inequities in the that a borrower or institution personnel commenters argued that if a lender criminal referral process without intended to ‘‘defraud’’ an institution discovered a financial misstatement or undermining the uniformity that the through violation of a Federal criminal collateral conversion only after the loan criminal referral regulations seek to statute. Institutions, therefore, must seek was repaid as agreed, the absence of any promote. to determine whether a actual loss should take precedence over There may also be situations where a misrepresentation of assets or a any retrospective view of potential loss. System institution wishes to refer a collateral conversion, for example, was The final rule continues to state that suspected criminal violation involving a done inadvertently or with the intent to lenders must refer crimes when the dollar amount under the threshold defraud the institution. This ‘‘actual or potential loss’’ exceeds the amount. System institutions should be determination involves the exercise of applicable thresholds, but the aware that the final regulation does not considerable discretion. In ascertaining parenthetical ‘‘(before reimbursement or affect, in any way, an institution’s whether a criminal referral is recovery)’’ has been deleted. discretion to make a criminal referral appropriate, an institution should Nevertheless, the FCA continues to that is below the reporting thresholds to consider all facts and circumstances, believe that when an institution the appropriate law enforcement including those that go to the question experiences an actual loss, the reporting authorities. Indeed, a System institution of intent. If the institution is persuaded thresholds in § 617.2 govern whether a should always bear in mind its that there is no evidence of intent and, referral is required and are to be applied obligation to uphold the integrity of the hence, no criminal violation, then it before reimbursement or recovery. The Farm Credit System and practice sound need not make a criminal referral. fact that a borrower reimburses the credit management. Thus, for example, However, an institution should institution after the fact or that the the repeated conversion of collateral or adequately document the basis for its converted collateral is recovered is the conversion of large amounts of determination that there was no irrelevant in determining whether a collateral should be reported even criminal intent, especially when the criminal referral is required. However, where the actual or potential loss does institution suffers a loss. While System when the amount of any actual loss is not meet the threshold requirements. institutions are not required to consult not yet known, the FCA has concluded E. Discretion To Make a Criminal legal counsel in determining whether an that the lender should make a Referral activity involved criminal intent, they reasonable assessment of the amount of may prefer to do so in close cases. the potential loss at the time of The preamble to the reproposed F. Probability of Prosecution discovery of the criminal activity and regulation attempted to clarify the use that amount to determine if a extent of an institution’s discretion to Several commenters urged the FCA to referral is required. The lender may base make a criminal referral. Commenters include in the final regulation a this assessment on the amount of the requested that the substance of the provision that would allow System collateral conversion or financial preamble discussion on discretion or institutions to make a referral misstatement, or on the reasonable the language in the current § 617.7160 determination based on the probability estimate of loan loss attributable to the be included in the final regulation. of prosecution of the subject of the conversion or misstatement, or another Current § 617.7160 provides that ‘‘it criminal referral. Commenters asserted method that is reasonable under the shall be the function of the general that some U.S. Attorneys have circumstances. When an estimate of counsel of the Farm Credit district established informal dollar thresholds potential loss is expressed as a range, a ** * to determine if there is for prosecution that are much higher referral is required if any part of the substantial evidence that a violation than the reporting thresholds range exceeds the applicable threshold. ** * has occurred * * *.’’ The established by the BFWG. The To further clarify, System institutions commenters also believed that further commenters stated that in their are advised that where criminal intent is discussion on discretion is necessary in experience some U.S. Attorneys will not not suspected, no criminal referral need the preamble to the final regulation to prosecute violations in amounts below be made because, in most avoid unnecessary referrals. these informal thresholds. circumstances, there would be no In response to the commenters’ The Department of Justice, a criminal violation regardless of the request, the FCA has incorporated participant in the BFWG and the actual or potential loss. If it is clear that guidance on discretion in the regulatory oversight agency for the Office of the an act was merely negligent and there text as well as in the preamble. The final U.S. Attorneys, helped establish and was no criminal intent, a referral would regulation incorporates language on fully supports the thresholds. While it is be inappropriate. Nor is a criminal discretion in new § 617.1(d), which true that prosecution for low dollar referral required if there is clear intent provides that a System institution is amounts is rare, the FCA believes that to defraud but no actual or potential loss responsible for determining whether the new reporting thresholds are Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Rules and Regulations 24565 appropriate and that law enforcement criminal referral to the appropriate law K. Adding a Section Incorporating the agencies should have the chance to enforcement authorities and follow up Language of Current § 617.7140 determine whether a criminal referral as soon as possible to ensure that a One commenter requested that the above these amounts is investigated and complete accounting of the facts and language of § 617.7140 of the existing prosecuted. Thus, the FCA has decided circumstances are reported to the law regulation be incorporated in the final not to incorporate this proposal in the enforcement authorities. Finally, a regulation. Section 617.7140 outlines final regulation. System institution should not delay the two most common types of G. Discovery of a Criminal Violation making a complete and accurate malfeasance that System institutions criminal referral because it is involved encounter—conversion and false Several commenters correctly noted in a sensitive workout with a borrower financial statements—and cites the an inconsistency in the language of or the borrower is under bankruptcy statutory sources in the Federal criminal reproposed § 617.2(a) and (b). protection. code. The FCA does not believe that this Reproposed § 617.2(a) required System information needs to be included in the institutions to refer criminal activity I. Transferring Responsibility for Making final regulation because it is included in after a ‘‘determination’’ that a violation Criminal Referrals the FCA Referral Form. has occurred. Reproposed § 617.2(b) required forwarding an FCA Referral Several commenters queried whether L. FCA Referral Form the final regulation would allow System Form to the FCA after a System Commenters expressed some general institutions that have primary institution ‘‘has discovered (or should concern about whether System responsibility for making criminal have discovered)’’ a violation. institutions would be using the FCA referrals to transfer this activity to their Commenters also requested that the Referral Form found in the FCA supervising bank. While the institution FCA limit its references to due diligence Examination Manual or a Uniform retains the ultimate accountability for in the final regulation. Specifically, Criminal Referral Form developed by several commenters requested that the exercising due diligence to ensure the the BFWG. System institutions were FCA delete the language ‘‘(or should discovery, appropriate investigation, concerned that a Uniform Criminal have discovered)’’ from § 617.2(b). and reporting of criminal activity as Referral Form would not be appropriate The FCA agrees that the due diligence required by § 617.2(a) and for ensuring for reporting violations arising from standard is already established in that the criminal referral is made, a agricultural lending, such as collateral § 617.2(a) and therefore applies to all criminal referral can be made on the conversions of agricultural products. aspects of an institution’s criminal institution’s behalf by a supervising The FCA concludes that System referral process. Consequently, the FCA System bank. This may be done institutions should continue to use the is deleting § 617.2(b) and moving the pursuant to a formal agreement whereby FCA Referral Form found in the FCA requirement that an FCA Referral Form the System bank making the referral is Examination Manual rather than a be forwarded to the FCA’s Office of acting as an agent for the institution Uniform Criminal Referral Form General Counsel to § 617.2(a). with primary responsibility. developed by the BFWG. The FCA These changes make it clear that the J. Referrals to State and Local believes that the FCA Referral Form is obligation to make a criminal referral more closely tailored to the types of Authorities arises when management has crimes most often encountered in determined that there is a known or One commenter urged the FCA to agricultural lending. It has been suspected criminal activity, not when amend the final regulation so that designed to be easy to use and to ensure management ‘‘has discovered (or should System institutions are merely the proper reporting of all required have discovered)’’ a violation. encouraged to file copies of the FCA information. The form itself contains H. Time Limit To Make a Criminal Referral Form with State and local instructions and a brief summary of Referral authorities rather than be required to statutory provisions pertaining to make such a criminal referral. The FCA criminal violations that most often Several commenters requested that occur in the context of agricultural the 30-day period during which a never intended to require that System institutions use the FCA Referral Form lending. Thus, the final regulation System institution must make a criminal requires System institutions to continue referral be amended to reflect the to refer State and local violations to State and local authorities or to inform to use the FCA Referral Form for all varying complexity of some criminal criminal referrals. The FCA will review referrals. Although the FCA recognizes State and local authorities of Federal violations. Rather, § 617.2(b) (formerly the FCA Referral Form periodically as System concerns, the Agency does not part of its ongoing effort to ensure that § 617.2(c) in the reproposed regulation) believe a change is warranted. The final System institutions have access to the requires a System institution to notify regulation continues to provide that best guidance possible. referrals must be made within 30 days the appropriate State or local law of determining that a criminal violation enforcement authorities when there is a M. Civil Liability for Making a Criminal appears to have occurred. The FCA known or suspected violation of State or Referral believes that in the great majority of local criminal law. The FCA continues Several commenters expressed situations it is reasonable to expect that to believe that this is a reasonable concern that System institutions and System institutions will be able to make requirement that will help ensure the institution personnel did not have a criminal referral within 30 days of safety and soundness of the institution immunity from civil liability for making determining that a violation has and the System without imposing an a criminal referral. The FCA’s occurred. In unusual situations undue burden. A System institution reproposed regulation did not address involving complicated facts, a System may use whatever means it deems this issue and no provision has been institution may need more than 30 days appropriate to make the referral. If a provided in the final regulation as this to make a complete criminal referral System institution thinks it appropriate, matter has been addressed by a statutory detailing all relevant information to law it can recommend that the State or local amendment. enforcement authorities. If so, System authorities not pursue a criminal The Farm Credit System Reform Act institutions should make a preliminary investigation and prosecution. of 1996 amended the Farm Credit Act of 24566 Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Rules and Regulations

1971 to provide System institutions and For the reasons stated in the whether there appears to be a reasonable their personnel with immunity from preamble, part 617 of chapter VI, title 12 basis to conclude that a criminal civil liability for making a criminal of the Code of Federal Regulations is violation has been committed and, if so, referral. See 12 U.S.C. 2219e. Now, FCS revised to read as follows: to report the matter to the proper law institutions and their personnel who enforcement authorities for disclose to a government authority PART 617ÐREFERRAL OF KNOWN consideration of prosecution. information proffered in good faith that OR SUSPECTED CRIMINAL (e) Each referral required by § 617.2(a) may be relevant to a possible violation VIOLATIONS shall be made on the FCA Referral Form of any law or regulation are not liable in accordance with the FCA Referral Sec. to any person under any law of the 617.1 Purpose and scope. Form instructions relating to its filing United States or of any State for the 617.2 Referrals. and distribution. disclosure or for any failure to notify the 617.3 Notification of board of directors and § 617.2 Referrals. person involved in the possible bonding company. violation. 617.4 Institution responsibilities. (a) Each institution and its board of As a result of this statutory change, Authority: Secs. 5.9, 5.17 of the Farm directors shall exercise due diligence to FCS institutions and their personnel Credit Act (12 U.S.C. 2243, 2252). ensure the discovery, appropriate enjoy immunity similar to that of the investigation, and reporting of criminal § 617.1 Purpose and scope. other financial institutions and their activity. Within 30 calendar days of personnel. See 12 U.S.C. 3401, 3403; 31 (a) This part applies to all institutions determining that there is a known or U.S.C. 5312, 5318. See also 31 CFR part of the Farm Credit System as defined in suspected criminal violation of the 103, subpart B. section 1.2(a) of the Farm Credit Act of United States Code involving or 1971, as amended, (Act) (12 U.S.C. affecting its assets, operations, or affairs, N. Miscellaneous Clarifications 2002(a)) including, but not limited to, the institution shall refer such criminal 1. Section 617.2(a) was amended to associations, banks, service corporations violation to the appropriate regional clarify the FCA’s intent that, although in chartered under section 4.25 of the Act, offices of the United States Attorney, the exercise of due diligence it is the the Federal Farm Credit Banks Funding and the Federal Bureau of Investigation direct lender’s responsibility to make a Corporation, the Farm Credit System or the United States Secret Service or criminal referral involving a loan it has Financial Assistance Corporation, the both, using the FCA Referral Form. A made, when a Federal land bank Farm Credit Leasing Services copy of the completed FCA Referral association services a loan made by a Corporation, and the Federal Form, accompanied by any relevant Farm Credit Bank, the association must Agricultural Mortgage Corporation documentation, shall be provided at the notify the Bank of any known or (hereinafter, institutions). The purposes same time to the Farm Credit suspected criminal violation involving of this part are to ensure public Administration’s Office of General that loan. confidence in the Farm Credit System, Counsel. In the event that a Farm Credit 2. Section 617.2(c) was amended to to ensure the reporting of known or bank makes a loan through a Federal specify that System institutions must suspected criminal activity, to reduce land bank association which services notify both the appropriate Federal law potential losses to institutions, and to the loan, the Federal land bank enforcement authorities and the FCA ensure the safety and soundness of association must inform the Farm Credit offices in those instances requiring institutions. This part requires that bank of any known or suspected urgent attention. institutions use the Farm Credit violation involving that loan and the 3. Former § 617.3(a) and (b) were Administration Criminal Referral Form Farm Credit bank shall refer the combined for brevity and renumbered as (hereinafter FCA Referral Form) to violation to Federal law enforcement § 617.3(a). That section provides that if notify the appropriate Federal authorities under this section. A report a criminal referral involves a member of authorities when any known or is required in circumstances where the board of directors, discretion may be suspected Federal criminal violations of there is: exercised in notifying such member of the type described in § 617.2 are (1) Any known or suspected criminal the criminal referral. The FCA intends discovered by institutions. activity (e.g., theft, embezzlement), the term ‘‘exercise of discretion’’ to (b) The specific referral requirements mysterious disappearance, unexplained mean that the institution must of this part apply to known or suspected shortage, misapplication, or other determine whether, under the criminal violations of the United States defalcation of property and/or funds, circumstances, only those members of Code involving the assets, operations, or regardless of amount, where an the board of directors not involved in affairs of an institution. This part institution employee, officer, director, the criminal violation should be notified prescribes procedures for referring those agent, or other person participating in of the criminal referral. violations to the proper Federal the conduct of the affairs of such an 4. Former § 617.3(c) has been authorities and the Farm Credit institution is suspected; renumbered as § 617.3(b) and amended Administration. No specific procedural (2) Any known or suspected criminal to provide that a System institution requirements apply to the referral of activity involving an actual or potential shall make all required notifications violations of State or local laws. loss of $5,000 or more, through false under a surety bond or other contract. (c) Nothing in this part should be statements or other fraudulent means, A System institution is no longer construed as reducing in any way an where the institution has a substantial required to make an initial institution’s ability to report known or basis for identifying a possible suspect determination of whether there is a loss suspected criminal activities to the or group of suspects and the suspect(s) prior to notification. appropriate investigatory or prosecuting is not an institution employee, officer, authorities, whether Federal, State, or director, agent, or other person List of Subjects in 12 CFR Part 617 local, even when the circumstances in participating in the conduct of the Banks, banking, Criminal referrals, which a report is required under § 617.2 affairs of such an institution; Criminal transactions, Embezzlement, are not present. (3) Any known or suspected criminal Insider abuse, Insvestigations, Money (d) It shall be the responsibility of activity involving an actual or potential laundering, Theft. each System institution to determine loss of $25,000 or more, through false Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Rules and Regulations 24567 statements or other fraudulent means, DEPARTMENT OF TRANSPORTATION inspections to detect cracking of the where the institution has no substantial lugs of the lower forward, lower rear, basis for identifying a possible suspect Federal Aviation Administration upper forward, and upper rear engine or group of suspects; or mounting beams, and replacement of 14 CFR Part 39 (4) Any known or suspected criminal the beam with a serviceable part, if necessary. activity involving a financial transaction [Docket No. 96±NM±188±AD; Amendment 39±10015; AD 97±10±03] in which the institution was used as a Interested persons have been afforded an opportunity to participate in the conduit for such criminal activity (such RIN 2120±AA64 making of this amendment. No as money laundering/structuring comments were submitted in response schemes). Airworthiness Directives; British Aerospace Model BAC 1±11 200 and to the proposal or the FAA’s (b) In circumstances where there is a 400 Series Airplanes determination of the cost to the public. known or suspected violation of State or Conclusion local criminal law, the institution shall AGENCY: Federal Aviation notify the appropriate State or local law Administration, DOT. The FAA has determined that air enforcement authorities. ACTION: Final rule. safety and the public interest require the adoption of the rule as proposed. (c) In addition to the requirements of SUMMARY: This amendment adopts a paragraph (a) of this section, the new airworthiness directive (AD), Cost Impact institution shall immediately notify by applicable to all British Aerospace The FAA estimates that 31 British telephone the appropriate Federal law Model BAC 1–11 200 and 400 series Aerospace Model BAC 1–11 200 and enforcement authorities and FCA offices airplanes, that requires repetitive 400 series airplanes of U.S. registry will specified on the FCA Referral Form ultrasonic inspections to detect cracking be affected by this AD, that it will take upon determining that a known or of the lugs of the engine mounting approximately 6 work hours per suspected criminal violation of Federal beams, and replacement of the beam airplane to accomplish the required law requiring urgent attention has with a serviceable part, if necessary. actions, and that the average labor rate occurred or is ongoing. Such cases This amendment is prompted by reports is $60 per work hour. Based on these include, but are not limited to, those of fatigue cracking of the lugs of the figures, the cost impact of the AD on where: engine mounting beams. The actions U.S. operators is estimated to be specified by this AD are intended to $11,160, or $360 per airplane. (1) There is a likelihood that the detect and correct such cracking of the The cost impact figure discussed suspect(s) will flee; engine mounting lugs, which could above is based on assumptions that no (2) The magnitude or the continuation result in reduced structural capability of operator has yet accomplished any of of the known or suspected criminal the engine mount. the requirements of this AD action, and violation may imperil the institution’s DATES: Effective June 10, 1997. that no operator would accomplish continued operation; or The incorporation by reference of those actions in the future if this AD (3) Key institution personnel are certain publications listed in the were not adopted. involved. regulations is approved by the Director of the Federal Register as of June 10, Regulatory Impact § 617.3 Notification of board of directors 1997. The regulations adopted herein will and bonding company. ADDRESSES: The service information not have substantial direct effects on the (a) The institution’s board of directors referenced in this AD may be obtained States, on the relationship between the shall be promptly notified of any from British Aerospace, Airbus Limited, national government and the States, or criminal referral by the institution, P.O. Box 77, Bristol BS99 7AR, England. on the distribution of power and except that if the criminal referral This information may be examined at responsibilities among the various involves a member of the board of the Federal Aviation Administration levels of government. Therefore, in (FAA), Transport Airplane Directorate, directors, discretion may be exercised in accordance with Executive Order 12612, Rules Docket, 1601 Lind Avenue, SW., notifying such member of the referral. it is determined that this final rule does Renton, Washington; or at the Office of not have sufficient federalism (b) The institution involved shall the Federal Register, 800 North Capitol implications to warrant the preparation promptly make all required notifications Street, NW., suite 700, Washington, DC. of a Federalism Assessment. under any applicable surety bond or FOR FURTHER INFORMATION CONTACT: Tim For the reasons discussed above, I other contract for protection. Backman, Aerospace Engineer, certify that this action (1) is not a Standardization Branch, ANM–113, § 617.4 Institution responsibilities. ‘‘significant regulatory action’’ under FAA, Transport Airplane Directorate, Executive Order 12866; (2) is not a Each institution shall establish 1601 Lind Avenue, SW., Renton, ‘‘significant rule’’ under DOT effective policies and procedures Washington 98055–4056; telephone Regulatory Policies and Procedures (44 designed to ensure compliance with this (206) 227–2797; fax (206) 227–1149. FR 11034, February 26, 1979); and (3) part, including, but not limited to, SUPPLEMENTARY INFORMATION: A will not have a significant economic adequate internal controls. proposal to amend part 39 of the Federal impact, positive or negative, on a Dated: April 25, 1997. Aviation Regulations (14 CFR part 39) to substantial number of small entities include an airworthiness directive (AD) under the criteria of the Regulatory Floyd Fithian, that is applicable to all British Flexibility Act. A final evaluation has Secretary, Farm Credit Administration Board. Aerospace Model BAC 1–11 200 and been prepared for this action and it is [FR Doc. 97–11685 Filed 5–5–97; 8:45 am] 400 series airplanes was published in contained in the Rules Docket. A copy BILLING CODE 6705±01±P the Federal Register on February 14, of it may be obtained from the Rules 1997 (62 FR 6892). That action proposed Docket at the location provided under to require repetitive ultrasonic the caption ADDRESSES.