By Michael S. Derby
Sept 28 (Reuters) – The US Federal Reserve’s in-house watchdog said on Monday that a former staff member was found multiple times trying to remove confidential information before retiring from the central bank, but these apparent breaches did not ultimately trigger a formal misconduct finding.
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The Fed’s Inspector General said in a report that the departing employee served in the central bank’s Division of International Finance and retired from the central bank in July 2024. The Fed’s IG did not respond to a request to provide the identity of the employee flagged in the report. The Fed’s Board of Governors did not immediately respond to a request for comment.
The IG said that despite the “potential severity” of the incident, its internal investigators “reviewed this matter for potential misconduct and determined that there was not a sufficient basis to pursue this incident as a misconduct investigation.”
That was because “available records did not provide a clear indication of what information the employee had removed before their departure” and “many” of the alerts involving the information “were, in fact, false positives,” the IG said.
“The specific details regarding this incident help to illustrate the systemic concerns” about how the Fed manages the exit process of central bank employees with access to confidential policymaking information, the IG report said.
Breakdowns in the process highlighted by the “potential incident” involving the retiring employee require “the Board’s immediate attention so that it can take appropriate corrective actions.”
In the report, the IG said the Fed concurred with recommendations to improve how data for exiting employees is handled. It said it has taken steps to better communicate policies around data management and is working to improve how violations of policies are addressed.
INFORMATION LEAK
The IG report recounted a series of incidents as the staffer headed to retirement. It flagged alerts involving information handling that occurred “three days before the employee took what we understood to be a personal trip to a restricted country, which was followed by a separate personal month-long international trip.” That trip to the unnamed restricted country took place in June 2024.
The IG said it became aware of the issues around the retiring employee in July 2025. The report said this employee was first flagged for copying confidential Federal Open Market Committee files to an unencrypted USB drive in 2021, and that the employee claimed this had been done mistakenly.
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In 2023, this employee attempted to email to a personal address more confidential FOMC files, which the employee claimed was “inadvertent,” the report said, adding the employee was again flagged in the same year for copying classified files to an unencrypted USB drive.
Before leaving, the IG said the retiring employee had generated a series of alerts “because of printing, copying data to a notepad application, sending potentially sensitive information in emails to multiple personal email addresses, and transferring potentially sensitive files to a Board-issued unencrypted USB device.”
The employee removed the information without seeking approval, despite “previously being informed” of how data should be handled and managed and stored, the IG said.
The watchdog said that when it comes to this series of incidents, “the failures involved a collective lack of action across multiple divisions, and the limited follow-up activities that did occur were not commensurate with the accumulation of risks in this situation.”
The Fed watchdog investigates internal issues faced by the central bank and has played a prominent role in recent years in probing trading activity by a range of Fed policymakers. The IG warned in a report in June that the Fed needed to take greater care in protecting confidential information during staff international travel.
The IG is currently engaged in a high-profile investigation into cost overruns incurred as part of the renovation of the central bank’s Washington headquarters. President Donald Trump, who has repeatedly attacked the Fed, had tried to use the renovations issue as an avenue to fire then-Fed Chair Jerome Powell, who now serves as a governor with Trump-installed Kevin Warsh as the current central bank leader.
(Reporting by Michael S. Derby; Editing by Nick Zieminski, Andrea Ricci and David Gregorio)
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