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FDIC Federal Register Citations

Hillcrest Bank

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First, we believe the $10,000 daily CTR reporting threshold is outdated and should be increased to $25,000 to reflect the affects of inflation.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.


Brad Bischoff
Vice President/Compliance
Hillcrest Bank

Last Updated 05/06/2005

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