Money Laundering Proposal Is Now Law

Additional Burdens-But Not All Bad News
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.

The House and Senate have finally passed legislation that would allow regulators to revoke the charters of financial institutions convicted of money laundering. Congress came close to enacting legislation in 1990 and again in 1991. The main thrust of the bill would permit charter revocation as well as the termination of deposit insurance of state-chartered depository institutions convicted of money laundering and Bank Secrecy Act violations.

Originally introduced in response to the plea bargain in the Bank of Credit and Commerce International (BCCI) money laundering case, the initial version of the bill mandated charter revocation for financial institutions convicted of money laundering. In apparent response to regulators' concerns, the bill was modified to afford regulators discretion to impose administrative sanctions (including charter revocation) under specified circumstances.

Five Factors Considered
The bill requires regulators to consider five factors in exercising the discretion to revoke a charter:

1. the extent to which senior management or directors were involved in the offense;
2. whether the institution had policies and procedures to prevent money laundering;
3. the extent of the institution's cooperation with law enforcement officials;
4. whether the institution has taken steps to prevent similar money-laundering offenses in the future; and
5. the effect of the forfeiture of the franchise on the local community's interest in adequate credit and depository service.

The bill also includes a successor liability provision that protects the acquirer of an institution that engaged in money laundering as long as the acquisition was made in good faith and not to evade the charter revocation provisions. The bill also gives regulators authority to remove from office or suspend certain individuals charged with Bank Secrecy Act offenses and felonies involving dishonesty or breach of trust (unless the violation was inadvertent or unintentional).

For example, regulators would be authorized to suspend an officer indicted for money laundering after concluding that his or her continued service would threaten to impair public confidence in the institution.

Additional Provisions
There are a series of additional provisions that will affect the banking industry. Under the bill, there would be increases in the civil money penalties for negligent BSA violations (up to $50,000 for patterns of negligence) and makes the operation of an illegal money transmitting business under state law, a federal crime punishable by 5 years in prison.

More Recordkeeping
Additional recordkeeping provisions in the bill include: giving the Treasury Department the authority to require financial institutions to obtain copies of cash reports that should have been filed by their customers as well as identifying those customers; and requiring Treasury regulations on international funds transfers and domestic fund transfers to be issued in a joint-rulemaking with the Federal Reserve Board. The international funds transfer regulations would have to be final by January 1, 1994. This bill also gives the Treasury new authority to create so-called "Know Your Customer" requirements similar to those recommended by the G-7 Task Force.

And Now Some Good News?
There are also some provisions that will aid the banking industry. These include protection from civil liability for financial institutions that report a customer on a criminal referral form or similar report for engaging in a possible violation of any law or regulation; providing access to the state banking regulators of the federal database containing cash reports; and the creation of an advisory group on the various reporting requirements.

And this is important?
Editor's Note: President Bush signed the above legislation into law on October 28, 1992. The money laundering amendments areimmediately effective. There are some major changes to the Bank Secrecy Act as indicated above. We will be covering each of those changes and will pass along ideas from the experts on how best to handle them in-house.

Also included in the law is an amendment moving the effective date of Regulation DD to June 21, 1992.

Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 6, 11/92