May 4, 2005
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429
RE: EGRPRA burden reduction comment
Dear Mr. Feldman,
Thank you for the opportunity to submit comment on
the regulatory burden of money laundering, safety and soundness, and
securities laws. Hillcrest Bank is a Kansas chartered commercial
bank with just over one billion dollars in assets. We have branches
in the Kansas City and Wichita metropolitan areas. We have submitted
comment on two rules presented for review this period.
Bank Secrecy Act Compliance
First, we
believe the $10,000 daily CTR reporting threshold is outdated and
should be increased to $25,000 to reflect the affects of inflation. The
current limit causes reporting of transactions to the extent that
they become burdensome to both the banks that complete the form and
the agencies that review them. This excessive reporting simply fills
the IRS database with reports that may not be useful to law
enforcement. The time it takes to enter the reports into the
database and for someone to review them must be growing longer. For
example, if we filed a CTR that contained an error, it now takes
months to receive correspondence from the IRS about that error. It
did not used to take that long and we believe this is the result of
the growing number of CTRs filed. It stands to reason that if the
number of reports received is growing, then the threshold for
reporting is now including transactions that are normal, routine,
transactions for some customers and the threshold should be
increased.
Secondly, the
number of CTRs filed could be reduced by alleviating some of the
burden regarding Phase II exemptions. We don’t believe it takes 12
months to determine the normal routine activity of a business. We
believe six months would be more appropriate and less burdensome for
both the bank and those persons who enter and review the CTRs.
Further, the
exemption process has become more burdensome for most banks than
filing CTRs. To file a CTR for a customer that routinely exceeds
$10,000 in a cash transaction, a photocopy template of a nearly
completed CTR (needing only the amount and date of the transaction
to be filled in) or using CTR preparation software takes less time
than setting up and maintaining the exemption. In order to keep a
Phase II exemption, annually we must monitor the number of times the
customer exceeded $10,000 over the last 12 months to ensure at least
eight large cash transactions were performed, request a copy of the
customer’s financial statement, and upon receipt review the
financial statement to ensure no more than 50% of its gross revenues
are derived from ineligible activities. We record daily the amount
of cash deposited or withdrawn by our exempt customers and review
the data periodically in order to detect any unusual ranges of cash
activity. This process proves to be more costly for us to have
exemptions versus simply filing CTRs for each reportable
transaction. Additionally, during our recent regulatory examination,
we believe our examiners spent more time reviewing our exemptions
than they did reviewing our CTRs filed. Naturally, then, we also
spent more time defending our exemptions than it would have taken to
simply file the CTRs. If the reasoning behind offering Phase II
exemptions is to alleviate the reporting burden for legitimate
transactions for which law enforcement finds little value, it stands
to reason that the exemption process for such entities should be
less burdensome for banks than filing the otherwise required CTRs.
Next, we
recommend the biennial exemptions monitoring requirement be removed
as unnecessary. We already review our exemptions on a daily basis,
as described above, and are further required to at least annually
review and verify a customer’s exempt status. We believe it would be
more prudent to only notify the IRS about an initial exemption, a
change in exemption status, and when the bank has revoked the
exemption.
Lastly,
regarding sales of monetary instruments such as official checks,
traveler’s checks, or money orders, we believe the reporting
threshold should be increased to $10,000 to reflect the affects of
inflation since this rule was implemented. Alternatively, perhaps
the current recordkeeping requirement should only affect
non-accountholders. Banks are already required to monitor accounts
for suspicious activity, and that would include frequent purchases
of monetary instruments for no apparent legitimate purpose.
Recording monetary instrument purchase information for
accountholders, whose identities have been verified and whose
transaction history is monitored, appears to be unduly burdensome.
Reports of Crimes or
Suspected Crimes
We believe the
threshold for filing a SAR should be increased to the same as the
requirements for filing CTRs, which we believe should be $25,000.
This would simplify compliance and may also reduce the number of
reports filed that are of little value to law enforcement. We have
filed numerous CTRs for which we have received a response from the
FBI that they will take no action because the dollar amount of the
suspicious activity did not meet prosecutive guidelines. It seems
unnecessary to require filing of reports that will not be used.
Similarly, we
recommend establishing a dollar threshold for insider abuse that
would eliminate SARs for small dollar theft. Currently insider abuse
involving any amount must be documented and reported and that
sometimes proves more costly than the amount of the insider abuse.
Sincerely,
Brad Bischoff
Vice President/Compliance
Hillcrest Bank
