May 4, 2005
Dear Sir or Madam:
The Wisconsin Bankers
Association (WBA) is the largest financial institution trade
association in Wisconsin representing over 300 state and nationally
chartered banks, savings and loan associations, and savings banks
located in communities throughout the State. WBA appreciates the
opportunity to submit comments with its recommendations for burden
reduction pursuant to the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (EGRPRA), as requested by the Office of the
Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation and the
Office of Thrift Supervision (collectively, the “Agencies”). This
letter primarily offers comments in the area of money laundering.
Money Laundering Regulations
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4721 SOUTH BILTMORE LANE
MADISON, WI 53718
P.O. BOX 8880
MADISON, WI 53708-8880
608-441-1200
FAX 608-661-9381
www.wisbank.com
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WBA strongly supports the goals of the Bank
Secrecy Act (BSA) and its related regulations and recognizes the
significant value these rules provide in the fight against the
financing of terrorism and other illicit enterprises. The decision
by the Agencies to address the many issues associated with BSA and
anti-money laundering (AML) compliance is encouraging news to the
industry. WBA understands that addressing the issues raised by BSA
and AML compliance cannot necessarily be resolved in a brief period
of time. Nonetheless, we strongly believe there are recommendations
that can be implemented in a relatively short period of time so as
to provide much needed and more immediate regulatory relief in this
particular area of compliance.
WBA encourages the Agencies to
reconsider certain rules relating to Currency Transaction Reports (CTRs),
Suspicious Activity Reports (SARs), and Money Services Businesses (MSB).
One of the major concerns we share with the Agencies is the massive
volume of reporting and the clogging effect it has on the system.
First and foremost, the $10,000 threshold for CTRs should be
increased. This threshold has not been adjusted for inflation since
first introduced. At a minimum, the increase should reflect
inflationary pressures in effect since its introduction in 1979.
Considering the frequency of transactions in this range nowadays,
failing to adjust this figure will only contribute to the clogging
of the filing and reporting system and the dilution of the quality
and value of information the government receives.
Additionally, this low CTR
threshold has the effect of artificially increasing the number of
SAR filings. To illustrate, a customer deposits, deliberately or
inadvertently, an amount of cash below but close to the $10,000
threshold. The deposit could conceivably be deemed to be an attempt
to circumvent reporting requirements by structuring cash
transactions. This would be considered suspicious and would trigger
a SAR filing. Thus, a low CTR threshold amount artificially
increases the number of SAR filings. The effect of a low CTR
threshold and its impact on SAR filings is equivalent to the effect
defensive SAR filings have.
Of course, the artificial
increase in SAR filings means that bankers are now obligated to
fulfill other due diligence, reporting, and recordkeeping
requirements. Financial institutions are expected to file SARs every
90 days after the initial SAR filing. This requirement should be
relaxed so that a SAR filing every 90 days is necessary only if
suspicious activity is believed to be taking place, not just as a
matter of course. To be consistent, an increase in the CTR threshold
should be accompanied with an increase in the SAR filing threshold.
From a more general standpoint,
the purpose for the filing and reporting requirements pursuant to
CTRs and SARs ought to have a wider rather than narrower focus. In
other words, WBA believes that a better approach is one not focused
on a cash transaction event on any given date, but one where the
focus is on the cash transactions over a relatively longer period of
time. WBA further believes that it is easier to detect a pattern of
potentially illegal or improper activities when data is analyzed
over an extended period of time, such as biweekly or monthly. This
will also decrease the volume of filings and resources spent by
financial institutions and the Agencies alike.
With regard to MSBs, the filing
requirements are triggered when an individual conducts $1,000 or
more in money services on any given date. For small accounts or an
account where this event is rather sporadic, filing and
recordkeeping requirements can be burdensome. This is especially
true for smaller financial institutions. WBA strongly encourages the
Agencies to change the language in this rule such that the
triggering event is one where the $1,000 or more threshold in money
services is a standard practice.
As stated above, other BSA and
AML issues are more complex and require a long-term approach. First
and foremost, WBA strongly believes that BSA and AML efforts ought
to be centralized. The Agencies, and the government in general,
should assume a more proactive approach to this very important issue
of money laundering and terrorist financing. Section 314(a) of the
USA PATRIOT Act is a case on point.
Section 314(a) requires the
Secretary of the Treasury to adopt regulations to encourage
regulatory authorities and law enforcement authorities to share with
financial institutions information regarding individuals, entities,
and organizations engaged in or reasonably suspected, based on
credible evidence, of engaging in terrorist acts or money laundering
activities. Section 314(a) enables federal law enforcement agencies,
through FinCEN, to reach out to 41,530 points of contact at more
than 20,000 financial institutions to locate accounts and
transactions of persons that may be involved in terrorism or money
laundering.
WBA believes that a multifaceted
approach to a financial institution’s review of the section 314(a)
list is necessary to allow for more expeditious and efficient
handling of such requests. WBA strongly encourages the Agencies to
allow key data processing vendors to have access to the section
314(a) list directly on behalf of their financial institution
clients. In that way, a review of the list is accomplished with a
mainframe data processing solution, much like OFAC reviews are
accomplished.
Moreover, the rules should be
harmonized and promulgated by one body. Currently, there is one body
of BSA and AML law but several different regulatory agencies
imposing similar but sometimes different standards, interpretations,
and examination procedures. For instance, a SAR must be filed when
there is (a) money laundering or BSA violations involving amounts of
$5,000 or more; (b) insider abuse regardless of the dollar amount;
(c) a federal crime conducted through the institution or that
affects the institution, with a known suspect, involving the $5,000
threshold; (d) and if there is no known suspect, the threshold jumps
to $25,000. Notice, however, that (a) above is a requirement imposed
by the Department of the Treasury (Treasury). The other requirements
are imposed by the Agencies. This is extremely important because if
a financial institution fails to report a case of structuring, for
instance, both the Treasury and the institution’s primary Federal
regulatory agency may properly cite the institution.
There can be no question that
this lack of a unified approach to BSA and AML compliance, and lack
of concrete guidance by the Agencies and the government alike, has
contributed to confusion in the industry. For example, more guidance
is needed to help bankers understand when to file a SAR. Currently,
the rules are such that it requires a banker to use law enforcement
techniques, subjective judgment, and sometimes detailed knowledge
about allegedly suspicious customers to determine if a SAR should be
filed. SAR reporting essentially turns financial institutions into
criminal investigation bureaus.
Unfortunately, it has been well
documented that a very small fraction of SAR filings receive follow
up by the appropriate agencies. WBA encourages the Agencies to
coordinate training and guidance with other government agencies,
such as the FBI, that are better equipped to provide specific
guidance and direction as to what is adequate, complete, and useful
information that will minimize the volume of filings but increase
the frequency of investigations by the Agencies or other
governmental bodies. Perhaps issuing a publication on a regular
basis that highlights elements, events, or circumstances that
prompted further investigation by the investigating governmental
body would be helpful to the industry. Out of so many filings,
knowing what exactly made certain filings worthy of further
investigation will benefit the industry and perhaps reduce the
volume of filings.
In addition, a safe harbor or
clear guidance is needed addressing Regulation B concerns when
attempting to comply with BSA’s Customer Identification Program
(CIP) requirements. On the one hand, many institutions’ CIP policies
require the copying of a photo ID in order to verify the identity of
the customer. Yet, on the other hand, the Agencies frown on this
practice indicating it could easily result in a Regulation B
violation of illegal discrimination in lending.
Also, financial institutions
need better guidance with respect to “politically exposed persons.”
Treasury issued a regulation implementing Section 312 of the USA
PATRIOT Act, which requires U.S. financial institutions to guard
against accepting the proceeds of foreign corruption from
kleptocrats, their families, and other associated “politically
exposed persons.” WBA believes that reasonable guidance is needed on
what is really expected when transacting with “politically exposed
persons.” Limiting the scope of individuals who are covered will
result in greater efficiencies for the Agencies and the financial
institutions charged with monitoring and reporting on these
individuals.
Another unresolved issue more
appropriately addressed by a unified approach deals with whether or
not the disclosure of SAR information to the institution’s board of
directors should eliminate the protections afforded by SAR
safe-harbor rules. WBA believes that if the institution’s policies
allow for the sharing of SAR information to board members and the
information is not disclosed or shared with others outside the board
of director’s meeting, then this sharing should absolutely fall
within the protection of the safe-harbor rules.
Appraisal Standards for
Federally Related Transactions
Much like CTRs and SARs, safety
and soundness rules are primarily contingent on a rigid monetary
threshold and should be revised to be more representative of today’s
economy and better reflect its realities. Hence, WBA strongly
encourages the Agencies to increase the $250,000 appraisal threshold
to reflect historical and current inflationary pressures and to
routinely make cost-of-living adjustments. In 1994, the Agencies
issued the Interagency Appraisal and Evaluation Guidelines to
primarily foster prudent appraisal and evaluation policies,
procedures, practices, and standards. Since then, however, the
$250,000 threshold has not been adjusted.
Conclusion
WBA appreciates the opportunity
to comment and make recommendations concerning this most recent
review of money laundering and other rules. While the review of such
rules pursuant to EGRPRA will take a long time, WBA encourages the
Agencies not to overlook short-term approaches to provide some much
needed regulatory relief, particularly in the area of money
laundering rules. Given the significant costs incurred by
financial institutions to comply with these rules, more specific
guidance resulting in a reduction in the volume of filing is needed.
Thank you for your consideration
of our comments.
Sincerely,
Kurt R. Bauer
President/CEO
