ICBA Policy Resolution: Bank Secrecy Act and Enforcement

Position

  • ICBA strongly supports the collection of beneficial ownership information by the appropriate government agency at the time an entity is formed rather than requiring financial institutions to assume this burden. However, financial institutions should have access to that information to assist them in performing customer due diligence. 
  • ICBA strongly urges Congress, the Treasury, the Financial Crimes Enforcement Network (FinCEN), and state and federal regulators to work with industry to find solutions for a more efficient regime and for reducing community banks’ mounting costs and regulatory burdens associated with compliance with anti-money laundering and terrorist financing laws and regulations.
  • ICBA urges the federal government to better inform bankers of what specific methods of terrorist financing and money laundering they are trying to prevent.
  • ICBA strongly recommends raising reporting thresholds with future increases linked to inflation to reflect an emphasis on quality over quantity.
  • ICBA recommends that community banks receive compensation for their anti-money laundering and anti-terrorist financing oversight and policing activities on behalf of the government either through tax credits or other financial compensation or through reduced regulatory burden in other areas.
  • ICBA strongly supports Treasury’s and banking agencies’ efforts to develop risk-based examinations for Bank Secrecy Act (BSA) compliance and identify low-risk transactions and accounts. 
  • ICBA recommends that nonbank institutions that perform “bank-like” functions and offer comparable financial services be subject to the same anti-money laundering and BSA laws and regulations as banks.
  • ICBA encourages the Office of Foreign Asset Control to streamline and simplify watch-lists of terrorists for ease of reference and application by bankers.

Background

Community bankers are committed to supporting balanced, effective measures that will prevent terrorists from using the financial system to fund their operations and prevent money launderers from hiding the proceeds of criminal activities. However, Bank Secrecy Act/Anti-Money Laundering compliance has increasingly burdened community banks with identifying, investigating, policing, and reporting potential criminal activity. Each year, community banks must invest more time, money, and resources to combat this threat. However, because BSA/AML requirements become outdated, community banks increasingly doubt their effectiveness in combating financial crime. ICBA supports BSA/AML reforms that will ease compliance while providing more useful data to law enforcement.

Beneficial ownership information should be collected and verified at the time a legal entity is formed, rather than requiring financial institutions to collect this information. Collecting and verifying the identity of all-natural person owners of each entity by either the Internal Revenue Service or other appropriate federal agency and/or state in which the entity is formed would provide uniformity and consistency across the United States. Making the formation of an entity contingent on receiving beneficial owner information would create a strong incentive for equity owners and investors to provide such information. Additionally, periodic renewal of an entity’s state registration would provide an efficient and effective vehicle for updating beneficial ownership information. If such information is housed at a government entity, community banks should have access to it.

Bank Secrecy Act (BSA) Requirements Should Be Flexible and Easily Applied

ICBA supports FinCEN’s efforts to simplify certain BSA forms and encourages the government to continue streamlining other reporting requirements. The federal government should continue working with the banking industry to provide additional guidance—such as best practices, questions and answers, or commentary—that is understandable, workable and easily applied by community banks FinCEN should continue its investigation and adaptation of technology to assist banks with their BSA compliance requirements. ICBA also encourages the Office of Foreign Asset Control to streamline and simplify its lists for ease of reference and application by bankers.

To ensure a consistent and balanced effort to combat money laundering and terrorist financing, the federal government should have consistent regulations across all financial services providers including nonbank entities. Additionally, the government should require reporting of only truly suspect transactions—and strive to balance those requirements against the need to respect customer privacy.

Reporting Thresholds Must Be Updated

Reporting thresholds are significantly outdated and capture far more transactions than originally intended. The currency transaction report (CTR) threshold, which was set in 1970, should be raised from $10,000 to $30,000 with future increases linked to inflation. A higher threshold would produce more targeted, useful information for law enforcement.

Suspicious activity reporting is the cornerstone of the BSA system and is a way for banks to provide leads to law enforcement. Unfortunately, in the current regulatory environment, community bankers have a strong incentive to protect themselves from examiner criticism and liability by over-filing of Suspicious Activity Reports (SARs) as a defensive practice, which dilutes their value to law enforcement. Regardless of the degree of offense, community banks are required to follow the same SAR procedure for every suspicious transaction alert. This mechanical approach makes community bankers doubtful that SARs have real value for law enforcement. Reforming the SAR process to a truly risk-based system with appropriate threshold increases would enable community banks to provide more targeted and valuable leads to law enforcement. Similar to the CTR thresholds, the SAR filing thresholds have not been adjusted since becoming effective in 1992.

Compensation Should Be Provided for Anti-Money Laundering and Anti-Terrorist Financing Efforts

Community bankers are committed to supporting balanced, effective measures that will prevent terrorists from using the financial system to fund their operations and prevent money launderers from hiding the proceeds of criminal activities. However, for community banks, BSA compliance represents a significant expense in terms of both direct and indirect costs. BSA compliance, whatever the benefit to society at large, is a governmental, law enforcement function. As such, the costs should be borne by the government.

Communication Among Industry, Law Enforcement and the Federal Government is Critical

Communication and cooperation are critical to an effective working partnership among the government, law enforcement, and financial institutions. Community banks seek more current information from the federal government to better understand what specific methods of terrorist financing and money laundering they are trying to prevent.

Staff Contact: Lilly Thomas and Chip Bartlett

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