FinCEN, KYC

Participating In Rulemaking Does Help
FinCEN held an open meeting on its proposed exemption rules on November 7, 1997, following the ABA/ABA Money Laundering Enforcement Seminar. The meeting was held on the record. It was an opportunity for the banks attending the meeting to air their views of the proposed Phase II rule and have an open discussion with FinCEN and IRS officials about workable alternatives to the proposal.

Annual Cash Aggregation
There was unanimous, strong opposition to the annual aggregate cash reporting. Bank representatives described the proposal as unworkable and expensive. The proposal would require new software for almost all banks - of all sizes. Particularly when juxtaposed with the Year 2000 efforts, bankers explained that they simply could not develop or implement new software and would revert to filing CTRs.

In making the annual cash aggregation proposal, FinCEN's primary concern was how to establish a customer knowledge base for law enforcement. After conceding that the proposal was not workable, FinCEN staff asked the meeting participants for alternative suggestions.

Several people suggested that the SAR system already provides the reporting mechanism for changes in customer activity that are suspicious. FinCEN appeared interested in this alternative, but was considering how to clearly place this responsibility. Another suggestion was to place limits - not unlike the present exemption system - on cash activity levels for exempt customers and investigate any pattern that exceeds the limits to determine whether it is suspicious.

Other Issues
The aggregation rule has gotten most of the attention. There are other issues that are problematic, such as how to treat multiple businesses, and how to exempt or not exempt co-mingled deposits. These should not be overlooked when developing a comment letter.

Questions To Answer In Your Comment Letter
What is an effective method of establishing a customer knowledge base? How strong is your front line system of Know Your Customer? Does your bank catch and report all or most suspicious transactions? How does your bank identify significant changes in a customer's cash activity that are not consistent with the normal business activity? What period of time (less than one year) would be appropriate for filing an exemption on a new customer? Who should be responsible for monitoring customer accounts? In addition to answering the questions, FinCEN would specifically like to know what system or program you have in place for Know Your Customer and for monitoring cash activity.

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 14, 12/97