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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
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
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