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From: A Mizrahi Sent: Tuesday, May 10, 2005 5:33 AM To: regs.comments@federalreserve.gov; Comments; regs.comments@occ.treas.gov; regs.comments@ots.treas.gov Subject: EGRPRA
I realize the May 4th comment deadline has come and gone,
but quite frankly I have been so busy with BSA/AML and Compliance issues
from our regulatory agency, that I have not had the time to sit down and
write a proper comment letter.
Since I will not have the time to run this through the
normal channels at my employer, I will submit this comment letter as a
private citizen who has worked in this area for many years. I am the
Compliance Officer for a national bank with just under $2 million in
assets. I will address the items stated in the Federal Register on
February 3, 2005.
A. Need for Statutory Change
The biggest need for a statutory change is to eliminate
the Currency Transaction Report (CTR) form for cash deposits and
withdrawals to deposit accounts at financial institutions. The CTR form
and reporting threshold was developed over 30 years ago. At that point
in time, $10,000 was a huge sum of money. Also, at that point in time,
SQL database and computer technology was in its infancy. However, we
still have that same threshold, and the same basic form with many parts
and boxes to cover any number of anticipated scenarios. However, no
matter how carefully the form is designed, it can still be difficult to
properly fill out the boxes to fit an unusual situation. If the
incorrect boxes are completed, the financial institution is at risk of a
regulatory violation not because the institution does not intend to
comply with the law, but because the CTR can be almost as complex to
fill out as an individual tax return. Yet, this form must be completed
thousands of times each day in financial institutions across the
country.
Given the technology that exists today, it would be far
simpler for banks to submit a monthly report of all deposit accounts
that had an aggregate cash in and/or cash out of $10,000 for the month.
The report can be a simple electronic file that consists of:
This reporting format would then eliminate thousands of
man hours expended by financial institutions in completing individual
CTR for everyday cash deposits and withdrawals. This would also
eliminate the need to file Suspicious Activity Reports (SAR) for deposit
account cash transactions just under $10,000. The current system in
effect today results in essentially the same information as the above
proposed report, but reduces the amount of time and effort involved, and
produces a database that law enforcement can more efficiently query to
look for address duplications across multiple financial institutions,
and other statistical anomalies in trends of cash transactions. Any
cash transactions over $10,000 are reported on a CTR (with the exception
of a handful of exempted customers), and many cash transactions under
$10,000 are now filed on a Suspicious Activity Report because banks feel
they must now file a SAR for these transactions as a defensive measure
against examiner criticism that can now carry sever enforcement actions.
Banks now receive an aggregate monthly cash transaction
report which must be reviewed for any missed CTR reportable
transactions, and any "structuring" patterns that would necessitate a
SAR. It would not take a great deal of effort to transform the
aggregate monthly cash transaction report into a simple electronic file
to be submitted monthly.
One benefit to the monthly account reporting by all banks
would be ability for law enforcement to review aggregate cash patterns
by address or common location. I can only hope that law enforcement is
geo-coding reported addresses to look for clusters of activity among
different demographic criteria. This is something that banks have been
doing from a Fair Lending analysis perspective, and the analysis of
activity can be quite illuminating.
The report can be much simpler and more efficient that
the cumbersome CTR filing, and remove all necessity to bother with
exemptions. Most banks have found that even under the new exemption
rule, the risk of examiner criticism, and the cost to maintain
additional due diligence and monitoring far outweigh any benefit that a
CTR exemption may provide.
This would eliminate the thousands of CTR filings done
each and every day. It would eliminate the need to look for structured
deposits. It would eliminate the fear of identity theft that employees
of retail stores have because they dont feel comfortable giving their
Drivers License number and Social Security Number to a bank for a
transaction that is not their own. The only "structuring" would be if a
customer opens up several accounts and deposits just under $10,000 A
MONTH to each account. Most banks now have systems that would easily
catch that kind of activity, and that WOULD be the type of structuring
that would be better indicative of money laundering efforts. (As opposed
to the liquor store owner who deposits $9,500 because his insurance
won't cover a loss involving more than $10,000 cash.)
With a reporting threshold of $10,000 a month, and a
recommendation or requirement that banks review cash activity below that
threshold for common beneficial ownership, a money launderer would be
hard pressed to launder any significant activity at a clip of less than
$10,000 a month per financial institution. Since most banks check a
customer ID database, even for business account signers and owners, and
the more commonly used databases inform banks of prior inquiries within
a certain time frame, it would be quite difficult for a person to open
up accounts at several institutions without a red flag popping up
somewhere along the way.
Eliminating the need to constantly file thousands of
"structuring" SARs, banks would be able to concentrate on truly
suspicious activity and perhaps be able to focus on activity indicative
of terrorist financing.
B. Need and Purpose of the Regulations
The need and purpose of the regulations is still quite
real as the flow of illicit money has not seen a downward trend. More
could be said about the status of certain drug policies as providing an
obscene profit motive that results in this amount of illicit money, but
this regulatory review is outside of those policy considerations.
C. General Approach/Flexibility
Two of the biggest areas that need a better general
approach and flexibility are: 1) Money Services Business as Bank
Customers; and 2) The trend for defensive SAR filing.
D. Effect of the Regulations on Competition
Depending on the geographic area, one regulatory agency
may be much stricter than another, thus creating an imbalance between
different types of insurance financial institutions. I would be very
curious to compare the Bank Secrecy Act examination for a credit union
against one of a commercial bank.
E. Reporting, Recordkeeping and Disclosure
Requirements.
This was covered under point A which called for the
elimination of CTRs on deposit accounts to be replaced with a
streamlined monthly reporting.
F. Consistency and Redundancy
This again will be a very simple point. The SARs filed
for structured transactions are simply a redundancy of CTRs for
non-structured transactions. Either way, cash over $10,000 is reported,
and cash under $10,000 is reported. The only difference is the form
number and which boxes get checked. The current reporting system is
antiquated and grossly inefficient.
G. Clarity
The biggest area for clarity is for better definitions,
or perhaps a regulatory Commentary on definitions of Money Services
Business. The following areas are in dire need of clarification:
H. Burden on Small Insurance Institutions
I have never worked at a financial institution of less
than $150Million in assets, so I will not leave a comment for this area.
However, in closing I would like to point out two of my
largest concerns in the area of Bank Secrecy Act (and Anti-Money
Laundering) enforcement.
1. BSA is killing CRA (Community Reinvestment Act)
2. BSA now poses a threat to our country's economic
superiority.
In point one, the current regulatory enforcement
environment forces many banks to remove resources from Community
Reinvestment Act efforts and apply them to BSA compliance efforts. Put
it this way, would a bank rather have it's officers out of the office to
teach financial literacy, or would it need those officers going around
to customers to gather "Know Your Customer" information and perform
"Enhanced Due Diligence" investigations. Based on the fines assessed
against Riggs and AmSouth, I would be inclined to say BSA is the top
priority, and CRA no longer is. During a recent regulatory exam, after
a particularly exhausting interrogation session with our examiners, I
made the comment that I still needed to review and file our CRA and HMDA
(Home Mortgage Disclosure Act) reports. The examiners rather callous
response to me was "Well, I don't have a dog in that fight." Well,
thank you. Thank you very much. That told me all I needed to know
about the relative importance of CRA in the examiner mindset these days.
The Office of Thrift Supervision was quite blunt in their
reason for raising the threshold for the easier "small bank exam." They
were concerned that the CRA burden was interfering with smaller
institutions BSA compliance efforts.
For point two, I will point out the damage that has
already been done to many small business owners who have had bank
accounts closed due to examiner pressure. These small business owners
typically service low and moderate income areas and low-mod income
individuals. This will have a devastating economic impact on these
areas. An entire industry is at risk of being put out of business
because the businesses cannot operate if they cannot have a bank
account. The personal impact on these business owners must also be
considered as these individuals may be unable to pay their mortgage or
rent or provide for themselves and their families. Banks are spending
an enormous amount of money and resources on BSA compliance efforts. As
the fear of another September 11th drives examiners to dig deeper and
deeper, the financial stranglehold will only get worse.
Let us be honest here. It was not the oversight of the
banking industry that precipitated September 11th. It was the lack of
the government officials who failed to deport known terrorists and
failed to report activities of known terrorists combined with the
airline industry's steadfast refusal to reinforce cockpit doors that led
to September 11th. And while regulatory agencies are operating in a "CYA"
mode to avoid Congressional criticism, we are doing more damage to
ourselves than the terrorists ever could. We are sowing the seeds of
our destruction while another nation stands poised on the brink of world
economic dominance. Yes, it would be the height of irony if over
aggressive enforcement of BSA and the USA PATRIOT Act leads to our
economic subservience to Communist China.
Bonnie Mizrahi, C.R.C.M.
17172 Armstead St.
Granada Hills, CA 91344
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Last Updated 05/12/2005 | regs@fdic.gov |