The Bank Secrecy Act & Money Laundering

John Byrne Talks About Financial Institutions And The Bank Secrecy Act

John Byrne is Senior Federal Legislative Counsel for the American Bankers Association, Washington, D.C. and is a frequent lecturer internationally on money laundering, BSA, and bank fraud. He has written many articles and appeared on TV as well as before Congress and state legislatures addressing money laundering problems and compliance by financial institutions.

"I don't think we're going to see any major legislative changes in the Bank Secrecy Act in the near future. It's an election year and there are certain other things occupying the time and energy of Congress, and there is no controversy surrounding the major money laundering bill right now, so there is no immediate push.

"Unfortunately, the same is not true about the regulators. We have had reports of inconsistency and nit-picking. They're under pressure to find things wrong.

"In terms of regulatory burden, there is a general leveling off in numbers and activity. There were about seven million CTRs filed in 1990 and 7.2 million in 1991 by financial institutions. I think the feeling is that we've about peaked in numbers. However, if financial institutions decide to drop their exemptions because of recent penalties that have been imposed for exemption problems, the number of filings could certainly go up.

"Magnetic filing may make a difference too.

"I think that most financial institutions that are at the level of electronic reporting have made that decision to go ahead and purchase the software. It's an initial tough cost, but after that it gets easier-and maybe gets us to the point later in that exemptions are no longer that much of an issue because everything will be filed immediately with Detroit.

"The increase in numbers of CTRs filed should be coming from the business community, but I'm not the least bit optimistic that unless they get hit hard by Treasury and IRS, that the numbers of filings of Form 8300s will substantially increase. I have to hand it to the Government-they are making an effort?clearly making business filing a priority?but I think because the regulatory scheme is so different between businesses and financial institutions that there is just not the ability to oversee their compliance as there is in our industry. The only thing that could change is if a particular industry gets hit hard with criminal or civil penalties and they all decide to clean house at the same time.

"The impact of the wire transfer reg depends largely upon the obvious-what will Treasury issue? We've heard that the regs have been substantially modified from the original proposal introduced several years ago. So we are looking at only record keeping-no reporting of any kind. The record keeping should be minimal, but it will nonetheless be a problem.

"Specifically, all financial institutions that handle wire transfers are going to have additional responsibilities that they do not currently have. My view is that wire transfer record keeping is a huge mistake. Unless the international community gets its act together, information provided by U.S. financial institutions will never be complete. Once again, the U.S. is asked to carry the burden. "Wire transfers move illegal money only if someone has failed to do their job somewhere else in the financial institution. This is just a "feel-good" proposal. It doesn't accomplish anything, it just makes law enforcement and the lawmakers feel good!

"The biggest problem with these regulations is the lack of consistent guidance. There are differences and tension between law enforcement, the regulators, and the bankers. Tell bankers what you want and you'll get it-but we're not getting one clear message. Information is coming from several sources. It's tough to separate the wheat from the chaff!

"For example, take suspicious transactions. It is our view, and the view of most agencies, that it is mandatory that you file a Criminal Referral Form. If a transaction is over $10,000, you should also file a CTR and check the suspicious transaction box. We also recommend a phone call to IRS-CID-with a log. A banker should write down the name of the person spoken to, what was discussed, and the response. Retain the log of the conversation for five years, just like all other BSA records.

"We found in some cases that the evidence of cooperation was very useful in mitigating fines. The log of the conversation with IRS is definite evidence of that cooperation.

"But once you've reported that customer on the criminal referral form, what do you do with the account? IRS wants you to keep it open so they can investigate. Justice Department says if you keep it open, you're in danger of bringing their wrath down on you for doing business with an alleged criminal. Right now there are no easy answers.

"We have heard that when the Criminal Referral Form is finally revised there will be a box that allows you to tell the government that you have: a) closed the account or b) continue to do business with the customer once you've made the filing. That is not safe harbor, but hopefully it is at least a step toward that eventual goal.

"The perfect safe harbor is protection from suit by either the customer or the government. We'd like protection from citizens that are suing us since we are required by law to report suspicious activity. Bankers need protection from the government in situations where it takes them a long time to review our information and the account stays open. A financial institution is running a risk by maintaining an account for a criminal. The American Bankers Association has continually sought guidance on this situation, but guidance is not forthcoming.

"The banker has to keep in mind that the agencies can make recommendations, but the Justice Department has to agree. They have the biggest gun.

"The American Bankers Association has made safe harbor a BSA priority for eight years. It is inconceivable to me how countries that have patterned themselves after our system, like Australia, can require suspicious transaction reporting with automatic safe harbors, and yet we still hear complaints from our government that they don't want to give financial institutions protection. We are going to continue to make the case. A safe harbor would result in better reports and better cooperation. "FinCEN, the center in Virginia where all the criminal referral forms will be data-entered, and eventually maybe the CTRs, has been a help to bankers.

"It is the only agency consistently giving us trends, red flags and updates on money laundering and additional types of suspicious activity. We hope that eventually the financial institution will only have to file one Criminal Referral Form with FinCEN instead of the five or six they now file.

"If I were a compliance officer in a financial institution, my emphasis right now would be on general training, and my focus would be on suspicious transactions. These are the areas of greatest potential liability.

"My next concern would be to keep up to date, and continually change my compliance program to stay that way. Whether you stay current with newspapers, conferences, newsletters, trade associations, government bulletins- whatever-you never want to be guilty of not being current. The regulators will not excuse it-nor should they.

"I would also take a real close look at my exemptions and probably consider reducing them in number. I certainly would not put any more on. There is absolutely no requirement to maintain exemptions, and although we've heard of regulators criticizing and writing up financial institutions for "malicious compliance" when they have no exemptions, there is absolutely no statutory authority for that-there could be no penalty or fine for not having an exempt list.

"And finally, I would institute some type of "Know Your Customer" program and educate my employees in the importance of obtaining all the information possible about our customers. Knowing your customer is, after all, the best insurance possible.

"I started by saying we don't expect any major changes. But remember, in Washington you never know what will trigger legislative activity?so stay tuned!"

Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 4, 8/92