Federal Register Citations Walworth State Bank
April 15, 2005
Robert E. Feldman
Federal Deposit Insurance Corporation
550 17th Street,
Washington, DC 20429
Attn: EGRPRA Burden Reduction
EGRPRA Burden Reduction Comments
Dear Sir or Madam:
The Walworth State Bank is a $170,000,000.00 state
chartered, privately owned bank located in southeastern Wisconsin.
We appreciate the opportunity to comment on the proposed rule
issued by the Federal Deposit Insurance Corporation and the other
Federal financial institution regulatory agencies (Agencies)
concerning outdated, unnecessary, or unduly burdensome regulatory
requirements pursuant to the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 (EGRPRA).
This letter primarily offers comments in the area
of money laundering, as our time spent for compliance in this area
has increased substantially over the past few years.
Money Laundering Regulations
Walworth State Bank 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. We understand 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.
We encourage the Agencies to reconsider certain
rules relating to Currency Transaction Reports (CTRs), Suspicious
Activity Reports (SARs), and Money Service 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
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, we
argue 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. We
further argue 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. We strongly encourage the Agencies
to change the language in this rule such that the triggering event
is one where the $1000 or more threshold in money services is a
As stated above, other BSA and AML issues are more
complex and require a long-term approach. First and foremost, we
strongly believe 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.
We believe that a multifaceted approach to a
financial institutions review of the section 314(a) list is necessary to allow for more
expeditious and efficient handling of such requests. We strongly
encourage that the Agencies 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
our institutions primary Federal regulatory agency may properly
cite our 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. We strongly encourage 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 BSAs 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. The
idea is that this regulation will serve as a strong deterrent
against tyrants and kleptocrats who seek to loot their countries
and then place those funds out of reach in the international
financial system. For this deterrence policy to effectively work,
we believe that better 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
Another unresolved issue more appropriately
addressed by a unified approach deals with whether or not the
disclosure of SAR information to the institutions board of
directors should eliminate the protections afforded by SAR
safe-harbor rules. We argue that if the institutions 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 directors meeting, then this sharing should absolutely
fall within the protection of the safe-harbor rules.
Appraisal Standards for Federally
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 todays economy and better
reflect its realities. Hence, we
strongly encourage 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.
Walworth State Bank
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, we strongly encourage 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 costs incurred by our financial institution 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.